S-4/A

As Filed with the Securities and Exchange Commission on January 31, 2006

Registration No. 333-129906

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Ashton Woods USA L.L.C.

and

Ashton Woods Finance Co.

(Exact Name of Registrants as Specified in their Charter)

Nevada Delaware	1531 1531	75-2721881 20-3548058
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

1080 Holcomb Bridge Road

Building 200, Suite 350

Roswell, GA 30076

(770) 998-9663

(Address, Including Zip Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

SEE TABLE OF ADDITIONAL REGISTRANTS

ROBERT SALOMON

Chief Financial Officer

1080 Holcomb Bridge Road

Roswell, GA 30076

(770) 998-9663

(Name, Address, Including Zip Code, and Telephone Number,

Including Area Code, of Agent For Service)

Copies to:

ELIZABETH NOE, ESQ.

Paul, Hastings, Janofsky & Walker LLP

600 Peachtree Street, N.E., Suite 2400

Atlanta, GA 30308

(404) 815-2400

     Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

     If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

     If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.    o

     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date, as the Commission, acting pursuant to said Section 8(a), may determine.

ASHTON WOODS USA L.L.C.

TABLE OF ADDITIONAL REGISTRANTS

			Primary Standard
	State of		Industrial
	Incorporation/		Classification		IRS Employer
Name	Formation		Code Number		Identification No.
Ashton Woods Construction LLC		AZ		1531		48-1257791
Ashton Woods Corporate, LLC		NV		1531		74-3134115
Ashton Orlando Residential L.L.C.		NV		1531		75-2721878
Ashton Woods Arizona L.L.C.		NV		1531		75-2721889
Ashton Tampa Residential, LLC		NV		1531		90-0193359
Ashton Denver Residential, LLC		NV		1531		74-3134117
Ashton Woods Florida L.L.C.		NV		1531		75-2721876
Ashton Woods Butler L.L.C.		NV		1531		65-0868570
Ashton Woods Lakeside L.L.C.		NV		1531		65-0868572
Canyon Realty L.L.C.		TX		1531		82-0588409
Ashton Dallas Residential L.L.C.		TX		1531		75-2549598
Ashton Houston Residential L.L.C.		TX		1531		76-0439587
Ashton Houston Development LLC		TX		1531		76-0510751
Ashton Brookstone, Inc.		TX		1531		43-2008656
Black Amber Florida, Inc.		FL		1531		98-0230804
Ashton Burden, LLC		FL		1531		35-2232436
Ashton Woods Orlando Limited Partnership		FL		1531		65-0806305
Isleworth West Limited Partnership		FL		1531		65-0822745
Pinery Joint Venture		CO		1531		84-1243958
Ashton Atlanta Residential, L.L.C.		GA		1531		58-2139774
Ashton Woods Transportation, LLC		GA		1531		20-3692656

      The address, including zip code and telephone number, including area code, of the principal offices of the additional registrants listed above is: 1080 Holcomb Bridge Road Roswell, GA 30076 at the telephone number at that address is (770) 998-9663.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY 31, 2006

PROSPECTUS

$125,000,000

Offer to Exchange

9.5% Senior Subordinated Notes due 2015,

which have been registered under the Securities Act of 1933,

for any and all outstanding

9.5% Senior Subordinated Notes due 2015,

which have not been registered under the Securities Act of 1933,

of

Ashton Woods USA L.L.C.

and

Ashton Woods Finance Co.

•  We will exchange all original notes that are validly tendered and not withdrawn before the end of the exchange offer for an equal principal amount of new notes that we have registered under the Securities Act of 1933 (the “Securities Act”).

•  This exchange offer expires at 5:00 p.m., New York City time, on                     , 2006, unless extended.

•  No public market exists for the original notes or the new notes. We do not intend to list the new notes on any securities exchange or to seek approval for quotation through any automated quotation system.

      The new notes will be our general, unsecured obligations and will be subordinated in right of payment to our existing and future senior debt, including borrowings under our senior unsecured credit facility. Our existing and future restricted subsidiaries will guarantee the new notes. These guarantees will be unsecured and will be subordinated in right of payment to all existing and future senior debt of the guarantors, including their guarantees of our senior unsecured credit facility. The new notes will be effectively subordinated to all of our and our subsidiary guarantors’ secured debt to the extent of the value of the assets securing that debt.

       See “Risk Factors” beginning on page 11 for a discussion of the risks that holders should consider prior to making a decision to exchange original notes for new notes.

       Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                     , 2006.

TABLE OF CONTENTS

Prospectus summary	1
Risk factors	11
Cautionary statements regarding forward-looking information	21
The exchange offer	22
Use of proceeds	31
Capitalization	32
Selected historical consolidated financial and operating data	33
Management’s discussion an analysis of financial condition and results of operations	36
Business	54
Management	65
Security ownership	69
Certain relationships and related transactions	71
Description of other indebtedness	73
Description of the notes	75
Material United States federal income tax considerations	120
Plan of distribution	124
Legal matters	125
Experts	125
Where you can find more information	125
Index to financial statements	F-1
EX-3.1(Z) ARTICLES OF ORGANIZATION OF ASHTON WOODS TRANSPORTATION, LLC
EX-3.2(AK) FORM OF OPERATING DECLARATION
EX-3.2(AL) FIRST AMENDMENT TO OPERATING DECLARATION OF ASHTON WOODS TRANSPORTATION L.L.C.
EX-3.2(AM) FIRST AMENDMENT TO AMENDED AND RESTATED REGULATIONS
EX-5.7 OPINION OF PAUL, HASTINGS, JANOFSKY & WALTER, LLP
EX-10.1 FORM OF AMENDED AND RESTATED CREDIT AGREEMENT
EX-10.7 FORM OF EMPLOYMENT AGREEMENT DATED JANUARY 30, 2005
EX-10.8 AGREEMENT OF LIMITED LIABILITY
EX-10.9 DOMINION TITLE OF DALLAS L.L.C. MEMBERS AGREEMENT
EX-10.10 DOMINION TITLE, LLC MEMBERS' AGREEMENT
EX-10.11 ASSIGNMENT OF MEMBERSHIP INTEREST
EX-10.12 PROMISSORY NOTE TO JOHN SHARP
EX-10.13 FORM OF PROMISSORY NOTE TO LARELNOR DEVELOPMENTS
EX-12.1 STATEMENT RE: COMPUTATION OF RATIOS
EX-23.7 CONSENT OF KPMG LLP
EX-25.1 STATEMENT OF ELIGIBILITY
EX-99.1 FORM OF LETTER OF TRANSMITTAL

Prospectus summary

       This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information you need to consider in making your investment decision. This summary is qualified in its entirety by the more detailed information and consolidated financial statements and notes thereto appearing elsewhere in this prospectus. You should read carefully this entire prospectus and should consider, among other things, the matters set forth in the section entitled “Risk factors” before deciding to exchange original notes for new notes.

THE COMPANY

      We are one of the largest private homebuilders in the United States based on home closings and revenues. We design, build and market high-quality single-family detached homes, townhomes and stacked-flat condominiums under the Ashton Woods Homes brand name. We operate in Atlanta, Dallas, Houston, Orlando and Phoenix and are establishing homebuilding operations in Tampa and Denver. These cities represent seven of the 20 largest new residential housing markets in the United States according to the U.S. Census Bureau. We have been in operation for over 15 years and serve a broad customer base including first-time buyers and first- and second-time move-up buyers. We focus on achieving the highest standards in design, quality and customer satisfaction. We have received numerous awards, including the 2005 and 2004 J.D. Power Award for Highest in Customer Satisfaction with New Homebuilders in Atlanta, and we were ranked in the top 10% of all homebuilders nationally in customer satisfaction in 2005 and 2004 by an independent nationally recognized survey company not affiliated with us.

BUSINESS STRATEGY

      The following are the key elements of our business strategy:

•  providing our customers with superior value, quality and customer service;

•  leveraging our product, customer and geographic diversification;

•  pursuing disciplined expansion in large, high growth markets;

•  acquiring and developing strong land positions;

•  managing inventory risk and maintaining a conservative financial profile; and

•  leveraging our highly experienced management team.

      Our executive offices are located at 1080 Holcomb Bridge Road, Building 200, Suite 350, Roswell, Georgia 30076. Our telephone number is (770) 998-9663. Our corporate website is www.ashtonwoods.com. The information on our website does not constitute part of this prospectus.

      Information regarding the J.D. Power and Associates 2005 New Home Builder Customer Satisfaction Study^sm was based on responses from 73,353 buyers of newly constructed homes in 30 of the largest U.S. markets, who were surveyed between March-July 2005. With respect to the 2005 survey, the Atlanta market covers Barrow, Cherokee, Clayton, Cobb, Coweta, Dawson, Dekalb, Douglas, Fayette, Forsyth, Fulton, Gwinnett, Hall, Henry, Newton, Paulding, Rockdale, Spalding and Walton counties. Information regarding the J.D. Power 2004 New Home Builder Customer Satisfaction Study^sm was based on responses from 64,502 buyers of newly constructed homes, respectively, in 25 of the largest U.S. markets. With respect to the 2004 survey, the Atlanta market covers Barrow, Bartow, Carroll, Cherokee, Clayton, Cobb, Coweta, Dawson, DeKalb, Douglas, Fayette, Forsyth, Fulton, Gwinnett, Hall, Henry, Newton, Paulding, Rockdale, Spalding and Walton counties.

1

The exchange offer

The Exchange Offer	We are offering to exchange up to $125,000,000 aggregate principal amount of our new 9.5% Senior Subordinated Notes due 2015 for up to $125,000,000 aggregate principal amount of our original 9.5% Senior Subordinated Notes due 2015, which are currently outstanding. Original notes may only be exchanged in $1,000 principal increments. In order to be exchanged, an original note must be properly tendered and accepted. All original notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer will be exchanged.
Resales Without Further Registration	We believe that the new notes issued pursuant to the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act provided that:
	• you are acquiring the new notes issued in the exchange offer in the ordinary course of your business;
	• you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, the distribution of the new notes issued to you in the exchange offer in violation of the provisions of the Securities Act; and
	• you are not our “affiliate,” as defined under Rule 405 of the Securities Act.
	Each broker-dealer that receives new notes for its own account in exchange for original notes, where such original notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes.
	The letter of transmittal states that, by so acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for original notes where such original notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed to use our reasonable best efforts to make this prospectus, as amended or supplemented, available to any broker-dealer for a period of 180 days after the date of this prospectus for use in connection with any such resale. See “Plan of distribution.”
Expiration Date	5:00 p.m., New York City time, on                     , 2006, unless we extend the exchange offer.
Accrued Interest on the New Notes and Original Notes	The new notes will bear interest from September 21, 2005 or the last interest payment date on which interest was paid on the original notes surrendered in exchange therefor. Holders of

2

	original notes that are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on such original notes accrued to the date of issuance of the new notes.
Conditions to the Exchange Offer	The exchange offer is subject to certain customary conditions which we may waive. See “The exchange offer — Conditions.”
Procedures for Tendering Original Notes	Each holder of original notes wishing to accept the exchange offer must complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; or if the original notes are tendered in accordance with the book-entry procedures described in this prospectus, the tendering holder must transmit an agent’s message to the exchange agent at the address listed in this prospectus. You must mail or otherwise deliver the required documentation together with the original notes to the exchange agent.
Special Procedures for Beneficial Holders	If you beneficially own original notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your original notes in the exchange offer, you should contact such registered holder promptly and instruct them to tender on your behalf. If you wish to tender on your own behalf, you must, before completing and executing the letter of transmittal for the exchange offer and delivering your original notes, either arrange to have your original notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.
Guaranteed Delivery Procedures	You must comply with the applicable guaranteed delivery procedures for tendering if you wish to tender your original notes and:
	• your original notes are not immediately available; or
	• time will not permit your required documents to reach the exchange agent prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer; or
	• you cannot complete the procedures for delivery by book-entry transfer prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer.
Withdrawal Rights	You may withdraw your tender of original notes at any time prior to 5:00 p.m., New York City time, on the date the exchange offer expires.
Failure to Exchange Will Affect You Adversely	If you are eligible to participate in the exchange offer and you do not tender your original notes, you will not have further exchange or registration rights and your original notes will continue to be subject to restrictions on transfer under the Securities Act. Accordingly, the liquidity of the original notes will be adversely affected.

3

Material United States Federal Income Tax Consequences	The exchange of original notes for new notes pursuant to the exchange offer will not result in a taxable event. Accordingly, we believe that:
	• no gain or loss will be realized by a United States holder upon receipt of a new note;
	• holder’s holding period for the new notes will include the holding period of the original notes; and
	• the adjusted tax basis of the new notes will be the same as the adjusted tax basis of the original notes exchanged at the time of such exchange.
	See “Material United States federal income tax considerations.”
Exchange Agent	U.S. Bank National Association is serving as exchange agent in connection with the Exchange Offer. Deliveries by hand, registered, certified, first class or overnight mail should be addressed to U.S. Bank National Association, 60 Livingston Avenue, EP-MN-WS2N, St. Paul, MN 55107, Attention: Specialized Finance Department, Reference: Ashton Woods USA L.L.C. Exchange. For information with respect to the Exchange Offer, contact the Exchange Agent at telephone number (800) 934-6802 or facsimile number (651) 495-8158.
Use of Proceeds	We will not receive any proceeds from the exchange offer. See “Use of proceeds.”

4

Terms of the new notes

       The exchange offer constitutes an offer to exchange up to $125,000,000 aggregate principal amount of the new notes for up to an equal aggregate principal amount of the original notes. The new notes will be obligations of the Company and Ashton Woods Finance Co. (the “Co-Issuer”) evidencing the same indebtedness as the original notes, and will be entitled to the benefit of the same indenture. The form and terms of the new notes are substantially the same as the form and terms of the original notes except that the new notes have been registered under the Securities Act. See “Description of notes.”

Issuers	Ashton Woods USA L.L.C. and Ashton Woods Finance Co.
Notes Offered	The form and terms of the new notes will be the same as the form and terms of the original notes except that:
	• the new notes will bear a different CUSIP number from the original notes;
	• the new notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer; and
	• you will not be entitled to any exchange or registration rights with respect to the new notes.
	The new notes will evidence the same debt as the original notes. They will be entitled to the benefits of the indenture governing the original notes and will be treated under the indenture as a single class with the original notes. We refer to the new notes and the original notes collectively as the notes in this prospectus.
Interest	The notes accrue interest from September 21, 2005 at the rate of 9.5% per year. Interest on the notes will be payable semi-annually in arrears, from the last date on which interest was paid, on each April 1 and October 1, commencing on April 1, 2006.
Maturity Date	October 1, 2015.
Optional Redemption	We may redeem the notes, in whole or part, at any time on or after October 1, 2010, at a redemption price equal to 100% of the principal amount, plus a premium declining ratably to par, plus accrued and unpaid interest.
	In addition, at any time prior to October 1, 2008, we may redeem up to 35% of the aggregate principal amount of the notes with the proceeds of qualified equity offerings at a redemption price equal to 109.5% of the principal amount, plus accrued and unpaid interest.
Change of Control	If we experience a change of control, we may be required to offer to purchase the notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest. We might not be able to pay you the required price for notes you present us at the time of a change of control because our senior unsecured credit facility or other indebtedness may prohibit payment or we might not have enough funds at that time.

5

Ranking; Guarantees	The notes are unsecured and are subordinated in right of payment to all of our existing and future senior debt, including borrowings under our senior unsecured credit facility.
	Our existing restricted subsidiaries jointly and severally guarantee the notes on a senior subordinated basis. Future direct and indirect U.S. subsidiaries, excluding subsidiaries that are designated unrestricted subsidiaries in accordance with the indenture, will be required to guarantee the notes.
	The guarantees are general unsecured obligations of the guarantors and are subordinated in right of payment to all existing and future senior debt of the guarantors, which includes their guarantees of our senior unsecured credit facility.
	As of November 30, 2005, the notes were subordinated to $46.8 million of senior debt and $178.2 million was available for borrowing as additional senior debt under our senior unsecured credit facility (net of $9.3 million of outstanding undrawn letters of credit). See “Capitalization.”
Certain Covenants	The indenture governing the notes contains covenants that limit our ability and the ability of our subsidiaries to, among other things:
	• incur additional indebtedness;
	• pay dividends or make other distributions or repurchase or redeem our stock;
	• make investments;
	• sell assets;
	• incur liens;
	• enter into agreements restricting our subsidiaries’ ability to pay dividends;
	• enter into transactions with affiliates; and
	• consolidate, merge or sell all or substantially all of our assets.
	These covenants are subject to important exceptions and qualifications, which are described under the heading “Description of the notes.”
No Listing on any Securities Exchange	We do not intend to list the new notes on any securities exchange or to seek approval for quotation through any automated quotation system.
Risk Factors	You should carefully consider the information under “Risk factors” beginning on page 11 of this prospectus and all other information included in this prospectus prior to making a decision to exchange original notes for new notes.

6

Comparison With The Original Notes

Freely Transferable

The new notes will be freely transferable under the Securities Act by holders who are not restricted holders. Restricted holders are restricted from transferring the new notes without compliance with the registration and prospectus delivery requirements of the Securities Act. The new notes will be identical in all material respects (including interest rate, maturity and restrictive covenants) to the original notes, with the exception that the new notes will be registered under the Securities Act. See “The exchange offer — Terms of the exchange offer.”

Registration Rights

The holders of the original notes currently are entitled to certain registration rights pursuant to a registration rights agreement entered into on the issue date of the original notes by and among the Company, the Co-Issuer, the subsidiary guarantors named therein and the initial purchasers named therein, including the right to cause the Company and the Co-Issuer to register the original notes for resale under the Securities Act if the Exchange Offer is not consummated prior to the applicable exchange offer termination date. However, pursuant to the registration rights agreement, certain registration rights will expire upon consummation of the exchange offer. Holders of original notes who do not exchange their original notes for new notes in the exchange offer will not be able to reoffer, resell or otherwise dispose of their original notes unless such original notes are subsequently registered under the Securities Act or unless an exemption from the registration requirements of the Securities Act is available.

      For additional information regarding the notes, see the “Description of notes” section of this prospectus.

7

Summary consolidated financial information and operating data

       The annual consolidated financial data presented below is derived from our audited consolidated financial statements as of May 31, 2004 and 2005 and for each of the years in the three-year period ended May 31, 2005, which are included elsewhere in this prospectus. The quarterly financial data presented below is derived from our unaudited consolidated financial statements as of, and for each of the six-month periods ended November 30, 2004 and November 30, 2005. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of our financial position and the results for those periods. You should read this information together with the consolidated financial statements and accompanying notes included elsewhere in this prospectus and “Selected historical consolidated financial and operating data” and “Management’s discussion and analysis of financial condition and results of operations” before deciding to exchange the original notes for new notes.

											Six Months Ended
		Fiscal Years Ended May 31,
											November 30,		November 30,
		2005			2004			2003			2005		2004
											(Unaudited)
		(Dollars in thousands)
Statement of Earnings Data:
Revenues
	Home sales	$	461,322		$	377,265		$	287,178		$	241,005	$	209,987
	Land sales		37,005			34,561			19,705			23,678		26,920
	Other		1,279			974			703			514		664
			499,606			412,800			307,586			265,197		237,571
Cost of sales
	Home sales		364,469			299,940			237,427			190,253		167,385
	Land sales		17,183			23,249			15,920			9,851		12,897
			381,652			323,189			253,347			200,104		180,282
Gross profit
	Home sales		96,853			77,325			49,751			50,752		42,602
	Land sales		19,822			11,312			3,785			13,827		14,023
	Other		1,279			974			703			514		664
			117,954			89,611			54,239			65,093		57,289
Expenses
	Sales and marketing		26,503			23,809			18,730			14,683		13,273
	General and administrative		28,861			20,246			16,560			18,124		12,281
	Franchise taxes		439			361			389			170		148
	Depreciation and amortization		3,870			3,915			3,574			2,442		1,821
			59,673			48,331			39,253			35,419		27,523
Earnings in unconsolidated entities			1,571			1,259			1,523			1,188		549
Minority interest in earnings			(398	)		(112	)		(12	)		—		(398	)
Net income(1)		$	59,454		$	42,427		$	16,497		$	30,862	$	29,917

8

										Six Months Ended
	Fiscal Years Ended May 31,
										November 30,			November 30,
	2005			2004			2003			2005			2004
										(Unaudited)
	(Dollars in thousands)
Balance Sheet Data (end of period):
Cash and cash equivalents	$	105		$	625		$	1,426		$	37		$	3,486
Inventory		255,993			205,684			196,920			347,788			225,728
Total assets		309,443			240,599			213,638			403,686			265,531
Total debt		110,535			89,568			108,718			171,839			98,696
Members’ equity		129,598			103,811			78,414			155,206			110,827
Supplemental Financial Data:
EBITDA(2)	$	68,553		$	52,525		$	27,920		$	35,920		$	34,631
EBITDA margin(2)(3)		13.72	%		12.72	%		9.08	%		13.5	%		14.6	%
Interest incurred(4)	$	4,840		$	4,932		$	5,796		$	5,396		$	2,060
Ratio of earnings to fixed charges(5)		12.53	x		9.35	x		4.00	x		5.93	x		14.89	x
Total debt to EBITDA		1.61	x		1.71	x		3.89	x		nm			nm
Total debt to total capitalization		46.0	%		46.3	%		58.1	%		52.5	%		47.1	%
Operating Data:
Net new home orders (units)		2,230			2,135			1,331			1,239			888
Homes closed (units)(6)		1,894			1,697			1,241			924			898
Average sales price per home closed	$	244		$	222		$	231		$	264		$	240
Backlog (units) at end of period		1,334			998			560			1,649			988
Sales value of backlog at end of period	$	369,949		$	240,346		$	122,627		$	492,879		$	263,311

(1)

Because we are structured as a limited liability company, income tax obligations are paid by our members and are not borne by us. Therefore, our net income is higher than it would be if we were structured as a subchapter C corporation. However, historically we have made distributions to our members in amounts necessary for them to pay income taxes attributable to them.

(2)

EBITDA (earnings before interest, taxes, depreciation and amortization) is calculated by adding previously capitalized interest amortized to costs of sales, franchise taxes, depreciation and amortization to net income. EBITDA is not a financial measure under generally accepted accounting principles in the United States, or GAAP. EBITDA should not be considered an alternative to net income determined in accordance with GAAP as an indicator of operating performance, nor an alternative to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Because some analysts and companies may not calculate EBITDA in the same manner as us, the EBITDA information in this prospectus may not be comparable to similar presentations by others.

EBITDA is a measure commonly used in the homebuilding industry and is presented as a useful adjunct to net income and other measurements under GAAP because it is a meaningful measure of a company’s performance, as interest, taxes, depreciation and amortization can vary significantly between companies due in part to differences in structure, accounting policies, tax strategies, levels of indebtedness, capital purchasing practices and interest rates. EBITDA also assists management in evaluating operating performance, and we believe that it is a useful measure for investors to compare us with our competitors.

EBITDA does have certain limitations as a tool for measuring Company performance from period to period, because that performance is affected by the use of cash to pay interest and taxes. These amounts, as well as depreciation and amortization, can fluctuate significantly over time due to our debt levels, income levels and other performance issues, which is not apparent if EBITDA is used as

9

an evaluation tool. To compensate for these limitations, our management uses both EBITDA and net income, the most directly comparable GAAP measure, to evaluate our performance.

The following is a reconciliation of EBITDA to net income, the most directly comparable GAAP measure:

							Six Months Ended
	Fiscal Years Ended May 31,
							November 30,		November 30,
	2005		2004		2003		2005		2004
							(Unaudited)
	(Dollars in thousands)
Net income	$	59,454	$	42,427	$	16,497	$	30,862	$	29,917
Franchise taxes		439		361		389		170		148
Depreciation and amortization		3,870		3,915		3,574		2,442		1,821
Interest expense in cost of sales		4,790		5,822		7,460		2,446		2,745
EBITDA	$	68,553	$	52,525	$	27,920	$	35,920	$	34,631

(3)	EBITDA margin is calculated by dividing EBITDA by total revenues.
(4)	Interest incurred for any period is the aggregate amount of interest which is capitalized during such period.
(5)	Computed by dividing earnings by fixed charges. Earnings consist of (i) income from operations before taxes, (ii) amortization of previously capitalized interest and (iii) fixed charges, exclusive of capitalized interest cost. Fixed charges consist of (i) interest incurred, (ii) amortization of deferred loan costs and (iii) an estimate of the interest within rental expense.
(6)	A home is included in “homes closed” when title is transferred to the buyer. Revenues and cost of sales for a home are recognized at the date of closing.

Ratio of Earnings to Fixed Charges

       Computed by dividing earnings by fixed charges. Earnings consist of (i) income from operations before taxes, (ii) amortization of previously capitalized interest and (iii) fixed charges, exclusive of capitalized interest cost. Fixed charges consist of (i) interest incurred, (ii) amortization of deferred loan costs and (iii) an estimate of the interest within rental expense.

																Six Months
																Ended
	Fiscal Years Ended May 31,
																November 30,
	2005			2004			2003			2002			2001			2005
Ratio of earnings to fixed charges		12.53	x		9.35	x		4.00	x		2.83	x		2.49	x		5.93	x

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Risk factors

RISKS RELATED TO OUR BUSINESS

Our home sales and operating revenues could decline due to macroeconomic and other factors outside of our control, such as changes in consumer confidence, declines in employment levels and terrorist attacks.

      The housing industry historically has been cyclical and has been affected significantly by adverse changes in consumer confidence levels and prevailing general and local economic conditions, including interest rate levels. These changes in economic conditions may result in more caution on the part of potential purchasers of our homes and consequently result in a decline in our home sales. Significant drivers of these economic conditions involve, among other things, conditions of supply and demand in our markets as well as changes in consumer confidence and income, employment levels, interest rate levels, government regulations, terrorist attacks and domestic and international instability. These risks and uncertainties could periodically have an adverse effect on consumer demand for and the pricing of our homes, which could impact our operating performance, make it more difficult for us to compete with larger home builders who have more resources to address pricing pressure and cause our operating revenues to decline. While the factors discussed above may have an impact on the homebuilding industry generally, they may have a more significant impact on us compared to certain of our competitors because our operations are concentrated in fewer geographic markets and because we may not have as significant reserves of resources to help us adjust to a decline in demand for our homes.

Our operating results are variable, which may cause the value of the notes to decline.

      We have historically experienced, and in the future expect to continue to experience, variability in our operating results on a quarterly and an annual basis. Factors expected to contribute to this variability include, among other things:

•  the timing of land acquisitions and zoning and other regulatory approvals;

•  the timing of home closings, land sales and level of home sales;

•  our product mix;

•  our ability to continue to acquire additional land or options thereon on acceptable terms;

•  the condition of the real estate market and the general economy;

•  delays in construction due to acts of God, adverse weather, reduced subcontractor availability and strikes; and

•  employment levels.

      For example, the timing of land acquisitions, zoning and other regulatory approvals impacts our ability to pursue the development of new housing projects in accordance with our business plan. If the timing of land acquisitions or zoning or regulatory approvals is delayed, we will be delayed in our ability to develop housing projects, which would likely decrease our backlog. Furthermore, these delays could result in a decrease in our revenues and earnings for the periods in which the delays occur and possibly subsequent periods until the planned housing projects can be completed. A delay in a significant number of home closings or land sales due to acts of God, adverse weather, subcontractor availability or strikes would have a similar impact on revenues and earnings for the period in which the delays occur. Further, revenues may increase in subsequent periods over what would normally be expected as a result of increased home closings as the delays described above are resolved.

      Changes in employment levels could affect the number of people seeking new housing in one or more of our markets. Consequently, if there was an adverse change in employment levels in our markets, we may not reach our projected level of home sales, and we may have planned the construction of more

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homes than necessary resulting in a slowdown in the closing of our developments. Conversely, favorable changes in employment levels could result in unexpected increases in our revenues and earnings.

An increase in mortgage interest rates or unavailability of mortgage financing may reduce consumer demand for our homes.

      Virtually all purchasers of our homes finance their acquisitions through lenders providing mortgage financing. A substantial increase in mortgage interest rates or unavailability of mortgage financing would adversely affect the ability of prospective homebuyers to obtain the financing they would need in order to purchase our homes, as well as adversely affect the ability of prospective move-up homebuyers to sell their current homes. For example, if mortgage financing became less available, demand for our homes could decline. A reduction in demand could also have an adverse effect on the pricing of our homes because we and our competitors may reduce prices in an effort to better compete for home buyers. A reduction in pricing could result in a decline in revenues and in our margins.

We intend to continue to consider growth or expansion of our operations which could have a material adverse effect on our cash flows or profitability.

      We intend to continue to consider growth or expansion of our operations in our current markets or in other areas which will require substantial capital expenditures. The magnitude, timing and nature of any future expansion will depend on a number of factors, including the identification of suitable markets, our financial capabilities, the availability of qualified personnel in the target market and general economic and business conditions. Our expansion into new or existing markets could have a material adverse effect on our cash flows or profitability.

      Historically, our strategy has been to enter new markets through the start-up of company-developed divisions, rather than the acquisition of existing homebuilding companies. Because we typically do not acquire existing homebuilders when entering a new market, we do not have the advantage of the experience and goodwill of an established homebuilding company. As a result, we incur substantial start-up costs in establishing our operations in new markets, and we may not be successful in taking operations in new markets from the start-up phase to profitability. If we are not successful in making operations in new markets profitable, we may not be able to recover our investment, and our financial results could suffer.

      Furthermore, in the future we may choose to enter new markets or expand operations in existing markets through acquisitions, and these acquisitions may result in the incurrence of additional debt, some of which could be secured or unsecured senior debt and therefore senior to the notes. Acquisitions also involve numerous risks, including difficulties in the assimilation of the acquired company’s operations, the incurrence of unanticipated liabilities or expenses, the diversion of management’s attention from other business concerns, risks of entering markets in which we have limited or no direct experience, and the potential loss of key employees of the acquired company.

Lack of greater geographic diversification could expose our business to increased risks if there are economic downturns in our markets.

      We have homebuilding operations in Atlanta, Dallas, Houston, Orlando, and Phoenix and are establishing homebuilding operations in Tampa and Denver. We also have land operations in Denver and Orlando. Our operations in Dallas and Atlanta together provided 48.5% and 45.4% of our home building revenues for the fiscal year ended May 31, 2005 and the six-month period ended November 30, 2005, respectively. Failure to be more geographically diversified could adversely impact us if the homebuilding business in our current markets, especially Dallas and Atlanta, should decline.

We could experience a reduction in home sales and revenues or reduced cash flows if we are unable to obtain reasonably priced financing to support our homebuilding and land development activities.

      The homebuilding industry is capital intensive, and homebuilding requires significant up-front expenditures to acquire land and begin development. Accordingly, we incur substantial indebtedness to

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finance our homebuilding and land development activities. Although we believe that internally generated funds and borrowing capacity under our senior unsecured credit facility will be sufficient to fund our capital and other expenditures (including land acquisition, development and construction activities), the amounts available from such sources may not be adequate to meet our needs. If such sources are not sufficient, we would seek additional capital in the form of debt or equity financing from a variety of potential sources, including additional bank financing and/or securities offerings. The amount and types of indebtedness which we may incur are limited by the terms of the agreements governing our existing debt and are limited by the terms of the indenture governing the notes. In addition, the availability of borrowed funds, to be utilized for land acquisition, development and construction, may be greatly reduced, and the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with both new loans and the extension of existing loans. The failure to obtain sufficient capital to fund our planned capital and other expenditures could have a material adverse effect on our business.

Changes in the government regulations applicable to homebuilders could restrict our business activities, increase our operating expenses and cause our revenues to decline.

      Regulatory requirements applicable to homebuilders could cause us to incur significant liabilities and operating expenses and could restrict our business activities. We are subject to local, state and federal statutes and rules regulating, among other things certain developmental matters, building and site design, and matters concerning the protection of health and the environment. Our operating expenses may be increased by governmental regulations, such as building permit allocation ordinances, impact and other fees and taxes, which may be imposed to defray the cost of providing certain governmental services and improvements. Other governmental regulations, such as building moratoriums and “no growth” or “slow growth” initiatives, which may be adopted in communities which have developed rapidly, may cause delays in our home projects or otherwise restrict our business activities resulting in reductions in our revenues. Any delay or refusal to grant us necessary licenses, permits or approvals from government agencies could have an adverse effect on our operations. Because we currently operate in only seven markets, any increase in costs or delays due to regulatory changes in one or more of our markets may have a proportionately greater impact on us than some other homebuilding companies that operate in more markets or more regions of the country.

We may incur additional operating expenses due to compliance requirements or fines, penalties and remediation costs pertaining to environmental regulations within our markets.

      We are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. The particular environmental laws which apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former use of the site. We expect that increasingly stringent requirements will be imposed on homebuilders in the future. Environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs, and prohibit or severely restrict development in certain environmentally sensitive regions or areas. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber. Furthermore, our failure to comply with all applicable environmental laws and regulations may result in the imposition of fines and penalties or remediation obligations that may require us to pay substantial amounts of money. The occurrence of any of the foregoing could result in an increase in our expenses and a reduction in our net income.

We are subject to warranty claims arising in the ordinary course of our business that could adversely affect our results of operations.

      We are subject in the ordinary course of our business to home warranty claims. We provide our homebuyers with a one year warranty covering workmanship and materials, a two year warranty covering construction defects and certain defects in plumbing, electrical, heating, cooling and ventilation systems and a ten year warranty covering construction defects. Warranty claims are common in the homebuilding industry and can be costly, and the terms and limitations of the limited warranties provided to homebuyers

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may not be effective against claims made by the homebuyers. We maintain homebuilder protective policy insurance coverage with Residential Warranty Corporation for construction defects. However, we may not be able to renew our insurance coverage or renew it at reasonable rates. As a result, we may be liable for damages, the cost of repairs and/or the expense of litigation surrounding possible construction defects, soil subsidence or building-related claims. Furthermore, claims may arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with our subcontractors. Increases in the cost to insure against warranty claims may result in an increase in our self-insured retentions and claims reserves. Further, the loss of insurance or liability for uninsured claims could result in an increase in our expenses reducing our margins and adversely affecting our results of operations and our ability to implement our business plan.

Our operating expenses could increase if we are required to pay higher insurance premiums or incur substantial litigation costs for claims involving construction and product defect liability claims, including claims related to mold, which could cause our net income to decline.

      The costs of insuring against construction defect and product liability claims are high, and the amount and scope of coverage offered by insurance companies is currently limited. The scope of coverage may continue to be limited or be further restricted and may become more costly which could require us to divert money away from implementing our business plan in order to pay insurance premiums.

      Increasingly in recent years, lawsuits (including class action lawsuits) have been filed against builders asserting claims of personal injury and property damage caused by the presence of mold in residential dwellings. Our insurance may not cover all of the claims, including personal injury claims, arising from the presence of mold, or such coverage may become prohibitively expensive. If we are not able to obtain adequate insurance against these claims, we may experience litigation costs and losses that could reduce our net income.

      Historically, builders have recovered from subcontractors and their insurance carriers a significant portion of the construction and product defect liabilities and costs of defense that the builders have incurred. Insurance coverage available to subcontractors for construction and product defects is becoming increasingly expensive and the scope of coverage is restricted. If we cannot effectively recover from our subcontractors or their carriers, we may suffer greater losses which could decrease our net income.

      A builder’s ability to recover against any available insurance policy depends upon the continued solvency and financial strength of the insurance carrier that issued the policy. Many of the states in which we build homes have lengthy statutes of limitations applicable to claims for construction defects. To the extent that any carrier providing insurance coverage to us or our subcontractors becomes insolvent or experiences financial difficulty in the future, we may be unable to recover on those policies and our net income may decline. Our inability to recover under those policies or to recover the losses from our subcontractors could have a more severe impact on us than on our larger competitors that have more financial resources.

We are dependent on the services of certain key employees, and the loss of their services could hurt our business.

      We currently operate with a management team comprised of four executive officers and a single president overseeing each geographic market. Therefore, we rely heavily on each of these individuals for their expertise and understanding of our business operations and strategy. Our decision making process is generally concentrated among these individuals and is based on their skill and depth of knowledge of the Company and the homebuilding industry. If we are unable to retain any of these key employees, particularly Tom Krobot and Robert Salomon, or attract, train, assimilate or retain other skilled personnel in the future, it could hinder the execution of our business strategy. Further, the loss of one or more of these key employees would put additional strain on the existing management team to fill the vacancy until a replacement can be identified. Competition for qualified personnel in all of our operating markets is intense, and it could be difficult for us to find experienced personnel to replace our current employees,

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particularly our management team. Furthermore, a significant increase in the number of our active communities would place additional strain on the members of our management team and would necessitate the hiring of a significant number of additional personnel, including senior officers, who are in short supply in our markets, particularly with respect to individuals with significant homebuilding experience.

We are dependent on the continued availability and satisfactory performance of our subcontractors, which, if unavailable, could have a material adverse effect on our business.

      We conduct our construction operations only as a general contractor. Virtually all construction work is performed by unaffiliated third party subcontractors. As a consequence, we depend on the continued availability of and satisfactory performance by these subcontractors for the construction of our homes. There may not be sufficient availability of and satisfactory performance by these unaffiliated third party subcontractors. If there are not sufficient quality subcontractors available to assist us in home construction, our ability to construct homes on the schedule we have committed to with our homebuyers would be affected. This could result in an increase in the number of homebuyers that cancel their contracts with us, resulting in less of our backlog being closed in a year than is projected, or could result in an increase in our costs to construct homes in a timely manner, which could result in an increase in our overall costs and thus a decline in our margins and in our net income.

Supply risks and shortages relating to labor and materials can harm our business by delaying construction and increasing costs.

      The homebuilding industry from time to time has experienced significant difficulties with respect to:

•  shortages of qualified trades people and other labor;

•  shortages of materials; and

•  volatile increases in the cost of certain materials, including lumber, framing and cement, which are significant components of home construction costs.

      These difficulties can, and often do, cause unexpected short-term increases in construction costs and cause construction delays. We are generally unable to pass on any unexpected increases in construction costs to those customers who have already entered into sales contracts, as those contracts generally fix the price of the house at the time the contract is signed, which may be up to one year in advance of the delivery of the home. Furthermore, sustained increases in construction costs may, over time, erode our profit margins. In the future, pricing competition may restrict our ability to pass on any additional costs, and we may not be able to achieve sufficient operating efficiencies and economics of scale to maintain our current profit margins.

Our financial condition and results of operations may be adversely affected by any decrease in the value of our land inventory, as well as by the associated carrying costs.

      We must continuously acquire land for replacement and expansion of land inventory within our existing and new markets. The risks inherent in purchasing and developing land increase as consumer demand for housing decreases. Thus, we may have bought and developed land which we cannot profitably sell or on which we cannot profitably build and sell homes. The market value of land, building lots and housing inventories can fluctuate significantly as a result of changing market conditions. It is possible that the measures we employ to manage inventory risks will not be successful and as a result our operations may suffer.

      In addition, inventory carrying costs can be significant and can result in losses in a poorly performing project or market. In the event of significant changes in economic or market conditions, we may have to sell homes at significantly lower margins or at a loss.

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Our business and operating results could be adversely affected by adverse weather conditions and natural disasters.

      Adverse weather conditions, such as extended periods of rain, snow or cold temperatures, and natural disasters, such as hurricanes, tornadoes, floods and fires, can delay completion and sale of homes, damage partially complete or other unsold homes in our inventory and/or decrease the demand for homes or increase the cost of building homes. As a result of a series of hurricanes, we experienced significant delays in land development and home construction during fiscal year 2005. Several communities in both Atlanta and Orlando have been delayed several months causing expected net new home orders and homes closed to be deferred into fiscal year 2006. To the extent that natural disasters or adverse weather events occur, our business and results may be adversely affected. To the extent our insurance is not adequate to cover business interruption losses or repair costs resulting from these events, our revenues and earnings may be adversely affected.

If we are unsuccessful in competing against other homebuilders, our market share could decline or our growth could be impaired and, as a result, our financial results could suffer.

      The homebuilding industry is highly competitive. Homebuilders compete for, among other things, desirable land, financing, raw materials, skilled labor and purchasers. We compete for residential sales on the basis of a number of interrelated factors, including location, reputation, amenities, design, quality and price, with numerous large and small homebuilders, including some homebuilders with nationwide operations and greater financial resources and/or lower costs than us. The consolidation of some homebuilding companies may create competitors that have greater financial, marketing and sales resources than we do and thus are able to compete more effectively against us. In addition, there may be new entrants in the markets in which we currently conduct business. We also compete for sales with the resale market for existing homes and with available rental housing. Increased competition could cause us to increase our selling incentives and reduce our home prices. Increased competition could also reduce the number of homes we deliver, reducing our revenues, or cause us to accept reduced margins to maintain sales volumes. A reduction in our revenue or margins due to competitive factors could affect our ability to service our debt, including the notes.

RISKS ASSOCIATED WITH THE NOTES AND THIS OFFERING

Our indebtedness could adversely affect our financial condition, limit our growth and make it more difficult for us to satisfy our debt obligations.

      As of November 30, 2005, we had $171.8 million of indebtedness outstanding and $178.2 million (net of $9.3 million of outstanding undrawn letters of credit) available for borrowing under our senior unsecured credit facility. Our indebtedness could have important consequences to us and the holders of the notes, including among other things,

•  cause us to be unable to satisfy our obligations under our existing or new debt agreements, including the notes;

•  make us more vulnerable to adverse general economic and industry conditions;

•  make it difficult to fund future working capital, land acquisition and development, home construction, acquisitions and general corporate needs;

•  cause us to be limited in our flexibility in planning for, or reacting to, changes in our business; and

•  cause us to be less competitive to other companies with less indebtedness.

      In addition, subject to restrictions in our existing debt instruments, we may incur additional indebtedness. If new debt is added to our current debt levels, the related risks that we now face could intensify.

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We may be unable to generate sufficient cash to service our debt obligations and make payments on the notes.

      Our ability to pay our expenses and to pay the principal of and interest on the notes and our other debt depends on our ability to generate positive cash flows in the future. Our operations may not generate cash flows in an amount sufficient to enable us to pay the principal of and interest on our debt, including the notes, or to fund our other liquidity needs. As of November 30, 2005, we had outstanding borrowings under our senior unsecured credit facility of $46.8 million. Based on these borrowings at our then current effective interest rate, our annual debt service cost under the senior unsecured credit facility was $2.7 million, and a 1% increase in the interest rate would increase such debt service requirements by $468,000 annually. As of November 30, 2005, our remaining borrowings consisted of the notes with a fixed interest rate of 9.5% per annum, which results in a debt service cost of $11.9 million.

      If we do not have sufficient cash flows from operations, we may be required to incur additional indebtedness, refinance all or part of our existing debt, including the notes, or sell assets. Our ability to borrow funds under our senior unsecured credit facility in the future will depend on our meeting the financial covenants in such senior unsecured credit facility, and sufficient borrowings may not be available to us. In addition, the terms of existing or future debt agreements may restrict us from effecting any of these alternatives. Any inability to generate sufficient cash flows or refinance our debt on favorable terms could significantly adversely affect our financial condition, the value of the notes and our ability to pay the principal of and interest on our debt, including the notes.

The families and family trusts that own our equity interests have the right to select our board members, can influence our business operations, including all matters subject to membership approval, and may have interests that conflict with the interests of our note holders.

      Entities directly or indirectly owned by six families or family trusts beneficially own all of the equity interests in us. By virtue of such equity ownership, our members have the sole power to:

•  elect the entire membership of our board of directors;

•  control all of our management policies, including as to the making of payments to our members or other affiliates, whether by way of dividend, compensation or otherwise or entering into other transactions with entities affiliated with the families and trusts comprising the ownership group; and

•  subject to compliance with our obligations under our senior unsecured credit facility and the notes, determine the outcome of any corporate matter or transaction, including mergers, joint ventures, consolidations and asset sales, equity issuances or debt incurrences.

      All of our directors are affiliates of our ownership group. We have been advised that our members do not currently plan to appoint any nonaffiliated or independent directors. As creditors, holders of the notes do not have the right to elect any directors.

      Other affiliates of our ownership group operate businesses that derive revenue from homebuilding and land development. Various of such affiliated entities have engaged, and will in the future continue to engage, in transactions with us. In particular, we are a party to a services and software license agreement with Paramount Development Corporation Limited, an affiliate of this group, pursuant to which we are provided a license to use software critical to our business, as well as assistance with land development matters. The initial term of the services and software license agreement is two years and will automatically renew for successive one-year terms unless either party gives notice that the agreement will not be renewed. We are also a party to agreements whereby we purchase finished and unfinished building lots from affiliates of our ownership group. See “Certain relationships and related transactions” for a description of such transactions. In addition, we may enter into other agreements for the purchase of finished and unfinished building lots with affiliates of this group in the future. The families and family trusts comprising our ownership group are not restricted from engaging in homebuilding or land development activities in the United States through entities unrelated to us.

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Any guarantees of the notes by our subsidiaries may be voidable, subordinated or limited in scope under laws governing fraudulent transfers and insolvency.

      Under federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, a guarantee of the notes by any subsidiary guarantor could be voided, subordinated, or limited in scope if, among other things, at the time the guarantor issued its guarantee, the applicable guarantor:

•  intended to hinder, delay or defraud any present or future creditor; or

•  received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; and

•  was insolvent or rendered insolvent by reason of such incurrence;

•  was engaged in a business or transaction for which such guarantor’s remaining assets constituted unreasonably small capital; or

•  intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

      The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, a guarantor in the United States would be considered insolvent if:

•  the sum of its debts, including contingent liabilities, was greater than the saleable value of all of its assets;

•  the present fair saleable value of its assets was less than the amount that would be required to pay its probable liabilities on its existing debts, including contingent liabilities, as they become absolute and mature; or

•  it could not pay its debts as they become due.

      We cannot be sure what standard a court would use to determine whether or not a guarantor was solvent at the relevant time, or, regardless of the standard that the court uses, that the issuance of the guarantee would not be avoided or the guarantee would not be subordinated to the guarantors’ other debt. If such a case were to occur, the guarantee could also be subject to the claim that, since the guarantee was incurred for the benefit of the issuer of the notes, and only indirectly for the benefit of the guarantor, the obligations of the applicable guarantor were incurred for less than fair consideration.

Your right to receive payments on the notes is subordinated to our and the guarantors’ senior debt.

      Payment on the notes is subordinated in right of payment to all of our and the guarantors’ senior debt, including that with respect to the senior unsecured credit facility. As a result, upon any distribution to our creditors in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or our property, the holders of senior debt will be entitled to be paid in full in cash before any payment may be made on the notes or the guarantees. In these cases, we may not have sufficient funds to pay all of our creditors, and holders of notes may receive less, ratably, than the holders of senior debt and, due to the subordination provisions in the indenture, less, ratably, than the holders of unsubordinated obligations, including trade payables. In addition, holders of senior indebtedness may, under certain circumstances, restrict or prohibit us from making payments on the notes.

      As of November 30, 2005, the notes were subordinated to $46.8 million of our and the guarantors’ senior debt, and $178.2 million (net of $9.3 million in outstanding undrawn letters of credit) would have been available for borrowing as additional senior debt under our senior unsecured credit facility. We and the guarantors are permitted to incur additional indebtedness, including senior debt, in the future under the terms of the indenture.

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The notes are unsecured and effectively subordinated to any secured indebtedness that we or the subsidiary guarantors may incur, which means note holders may recover less than the lenders of the secured debt in the event of our bankruptcy or liquidation.

      The notes are unsecured obligations. While we and the subsidiary guarantors currently do not have any material secured debt, under the terms of the indenture governing the notes, we and the subsidiary guarantors may be able to incur significant additional secured indebtedness without equally and ratably securing the notes. If we become insolvent or are liquidated, or if payment under any secured debt obligations is accelerated, our secured lenders would be entitled to exercise the remedies available to a secured lender under collateral before the holders of the notes. As a result, the notes are effectively subordinated to any secured indebtedness we may incur in the future, and the holders of the notes may recover ratably less than the lenders of our secured debt in the event of our bankruptcy or liquidation. In addition, guarantees of the subsidiary guarantors will also be unsecured. Any secured indebtedness that these subsidiaries may incur will similarly be senior to such guarantee obligations.

Our senior unsecured credit facility and the indenture governing the notes contain a variety of covenants imposing significant operating and financial restrictions which may limit our ability to operate our business. Our failure to comply with these covenants could result in an event of default under the indenture relating to the notes.

      Our senior unsecured credit facility requires us to maintain specified financial ratios and tests, among other obligations, including a minimum tangible net worth test and a maximum leverage ratio. In addition, our senior unsecured credit facility and the indenture governing the notes have affirmative and negative covenants customary for financings of that type, which will limit our ability to, among other things, borrow money, make investments and extend credit, engage in transactions with our affiliates, consummate certain asset sales, consolidate or merge with another entity or sell, transfer, lease or otherwise dispose of all or substantially all of our assets, and create liens on our assets. It is possible that these covenants may adversely impact our ability to finance our future operations or capital needs to pursue available business opportunities. Additionally, a failure to comply with any of these covenants could lead to an event of default under our senior unsecured credit facility, which could result in an acceleration of the indebtedness under the senior unsecured credit facility. Acceleration of the indebtedness under our senior unsecured credit facility or other senior indebtedness would constitute an event of default under the indenture. If an event of default exists on our senior indebtedness designated in the indenture, subordination provisions in the indenture may restrict payments to holders of the notes until holders of senior indebtedness are paid in full or the default is cured or waived or has ceased to exist. For additional information regarding our senior unsecured credit facility see the description under “Description of other indebtedness” and “Description of the notes — Certain Covenants.”

There is no established trading market for the new notes, and you may not be able to sell them quickly or at the price that you paid.

      The new notes are a new issue of securities, and there is no established trading market for the new notes. We do not intend to apply for the new notes to be listed on any securities exchange or to arrange for quotation on any automated dealer quotation systems. Each initial purchaser of the original notes advised us that they intend to make a market in the new notes, but no initial purchaser is obligated to do so. The initial purchasers may discontinue any market making in the new notes at any time, in their sole discretion. As a result, an active trading market for the new notes may not develop.

Note holders may not be entitled to require us to repurchase the notes in connection with certain transactions because the term “all or substantially all” in the context of a change of control has no clearly established meaning under the relevant law.

      One of the ways a change of control can occur under the indenture governing the notes is upon a sale of all or substantially all of our assets. The meaning of the phrase “all or substantially all” as used in that definition varies according to the facts and circumstances of the subject transaction, has no clearly

19

established meaning under applicable law and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of “all or substantially all” of the assets of a person and therefore it may be unclear whether a change of control has occurred and whether you have the right to require us to repurchase the notes.

We may not be able to satisfy our obligations to holders of the notes upon a change of control.

      Upon the occurrence of a “change of control,” as defined in the indenture, each holder of the notes will have the right to require us to purchase the notes at a price equal to 101% of the principal amount, together with any accrued and unpaid interest. Our failure to purchase, or give notice of purchase of, the notes would be a default under the indenture, which would in turn be a default under our senior unsecured credit facility. In addition, a change of control may constitute an event of default under our senior unsecured credit facility. A default under our senior unsecured credit facility would result in an event of default under the indenture if the lenders accelerate the debt under our senior unsecured credit facility.

      If a change of control occurs, we may not have enough assets to satisfy all obligations under our senior unsecured credit facility and the indenture related to the notes. Upon the occurrence of a change of control we could seek to refinance the indebtedness under our senior unsecured credit facility and the notes or obtain a waiver from the lenders or you as a holder of the notes. It is possible, however, that we will not be able to obtain a waiver or refinance our indebtedness on commercially reasonable terms, if at all.

Ashton Woods Finance Co. has only nominal assets from which to make payments on the notes.

      Ashton Woods Finance Co. is a co-obligor on the notes. Ashton Woods Finance Co. is a wholly-owned subsidiary of Ashton Woods USA L.L.C., with no operations and only nominal assets from which to make payments on the notes.

If you fail to exchange your original notes, you will face restrictions that will make the sale or transfer of your original notes more difficult.

      If you do not exchange your original notes for new notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your original notes described in the legend on your original notes. In general, you may only offer or sell the original notes if they are registered under the Securities Act and applicable state securities laws, or offered and sold under an exemption from those requirements. We do not intend to register the original notes under the Securities Act. To the extent other original notes are tendered and accepted in the exchange offer and you elect not to exchange your original notes, the trading market, if any, for your original notes would be adversely affected because your original notes will be less liquid than the new notes. See “The exchange offer-Consequences of failure to exchange.”

Some holders that exchange their original notes may be required to comply with registration and prospectus delivery requirements in connection with the sale or transfer of their new notes.

      If you exchange your original notes in the exchange offer for the purpose of participating in a distribution of the new notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. If you are required to comply with the registration and prospectus delivery requirements, then you may face additional burdens on the transfer of your notes and could incur liability for failure to comply with applicable requirements.

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Cautionary statements regarding forward-looking information

       This prospectus contains forward-looking statements which represent our expectations or beliefs concerning future events, and no assurance can be given that the results described in this prospectus will be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or other similar words or phrases. All forward-looking statements are based upon information available to us on the date of this prospectus.

      These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this prospectus in the sections captioned: “Prospectus summary” and “Risk factors.” Other factors, risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements include but are not limited to:

•  economic changes nationally or in our local markets;

•  volatility of mortgage interest rates and inflation;

•  increased competition;

•  shortages of skilled labor or raw materials used in the production of houses;

•  increased prices for labor, land and raw materials used in the production of houses;

•  increased land development costs on projects under development;

•  the cost and availability of insurance, including the availability of insurance for the presence of mold;

•  the impact of construction defect and home warranty claims;

•  any delays in reacting to changing consumer preferences in home design;

•  changes in consumer confidence;

•  delays in land development or home construction resulting from adverse weather conditions;

•  potential delays or increased costs in obtaining necessary permits as a result of changes to, or complying with, laws, regulations or governmental policies, including environmental laws, regulations and policies; or

•  terrorist acts and other acts of war.

      Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all such factors.

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The exchange offer

TERMS OF THE EXCHANGE OFFER

Purpose of the exchange offer

      We sold $125.0 million in principal amount of the original notes on September 21, 2005 in a transaction exempt from the registration requirements of the Securities Act. The initial purchasers of the original notes subsequently resold the original notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act.

      In connection with the sale of original notes to the initial purchasers pursuant to a purchase agreement, dated September 21, 2005, among us, the Co-Issuer, the guarantors named therein and the initial purchasers, the holders of the original notes became entitled to the benefits of registration rights agreement, dated September 21, 2005, among us, the Co-Issuer, the guarantors named therein and the initial purchasers.

      The registration rights agreement provides that we, the Co-Issuer and the guarantors will, at our cost:

•  file an exchange offer registration statement with the Securities and Exchange Commission (the “SEC”) with respect to a registered exchange offer to exchange the original notes for the new notes;

•  use our reasonable best efforts to cause the exchange offer registration statement to be declared effective under the Securities Act;

•  use our reasonable best efforts to consummate the exchange offer within 210 days after September 21, 2005; and

•  keep the exchange offer open for not less than 30 days (or longer if required by applicable law) after the date notice of the exchange offer is mailed to the holders of the original notes.

      The exchange offer being made by this prospectus, if consummated within the required time periods, will satisfy our obligations under the registration rights agreement. This prospectus, together with the letter of transmittal, is being sent to all beneficial holders of original notes known to us.

      Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, we will accept all original notes properly tendered and not withdrawn prior to the expiration date. We will issue $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding original notes accepted in the exchange offer. Holders may tender some or all of their original notes pursuant to the exchange offer.

      Based on no-action letters issued by the staff of the SEC to third parties, we believe that holders of the new notes issued in exchange for original notes may offer for resale, resell and otherwise transfer the new notes, other than any holder that is an affiliate of ours within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act. This is true as long as the new notes are acquired in the ordinary course of the holder’s business, the holder has no arrangement or understanding with any person to participate in the distribution of the new notes and neither the holder nor any other person is engaging in or intends to engage in a distribution of the new notes. A broker-dealer that acquired original notes directly from us cannot exchange the original notes in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the new notes cannot rely on the no-action letters of the staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

      Each broker-dealer that receives new notes for its own account in exchange for original notes, where such original notes were acquired by such broker-dealer as a result of market-making or other trading

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activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. See “Plan of distribution” for additional information.

      We will accept validly tendered original notes promptly following the expiration of the tender offer by giving oral or written notice of the acceptance of such notes to the exchange agent. The exchange agent will act as agent for the tendering holders of original notes for the purposes of receiving the new notes from the issuer and delivering new notes to such holders.

      If any tendered original notes are not accepted for exchange because of an invalid tender or the occurrence of the conditions set forth under “Conditions” without waiver by us, certificates for any such unaccepted original notes will be returned, without expense, to the tendering holder of any such original notes promptly after the expiration date.

      Holders of original notes who tender in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of original notes, pursuant to the exchange offer. We will pay all charges and expenses, other than certain applicable taxes in connection with the exchange offer. See “Fees and Expenses.”

Shelf registration statement

      Pursuant to the registration rights agreement, we have agreed to file a shelf registration statement if:

•  we are not permitted to file the exchange offer registration statement or consummate the exchange offer because the exchange offer is not permitted by applicable law or SEC policy;

•  the exchange offer is not consummated within 210 days after the issue date of the original notes;

•  any holder notifies us prior to the 20th day following the consummation of the exchange offer that it is prohibited by law or the applicable interpretations of the SEC from participating in the exchange offer;

•  in the case of any holder that participates in the exchange offer, such holder does not receive new notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such holder as an affiliate of ours); or

•  an initial purchaser so requests with respect to original notes that have, or that are reasonably likely to be determined to have, the status of unsold allotments in an initial distribution.

      A holder that sells original notes pursuant to the shelf registration statement generally must be named as a selling securityholder in the related prospectus and must deliver a prospectus to purchasers, because a seller will be subject to civil liability provisions under the Securities Act in connection with these sales. A seller of the original notes also will be bound by applicable provisions of the applicable registration rights agreement, including indemnification obligations. In addition, each holder of original notes must deliver information to be used in connection with the shelf registration statement and provide comments on the shelf registration statement in order to have its original notes included in the shelf registration statement and benefit from the provisions regarding any liquidated damages in the registration rights agreement.

      We have agreed to use our reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act on or prior to the later of (i) 210 days after the issuance of the original notes and (ii) 120 days after being required to file the shelf registration statement. In addition, we agreed to use our reasonable best efforts to keep the shelf registration statement continually effective, supplemented and amended for a period of two years following the date the shelf registration statement is declared effective, or:

•  such shorter period which terminates when all notes covered by that shelf registration statement have been sold under it; or

•  such shorter period provided by the SEC as a result of the applicable provisions of Rule 144(k) being amended or revised to reduce the two-year holding period provided therein.

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Additional interest in certain circumstances

      If any of the following, each a “registration default,” occurs:

•  the exchange offer is not completed on or before the 210th calendar day following the issue date of the original notes or, if that day is not a business day, then the next succeeding day that is a business day; or

•  the shelf registration statement is required to be filed but is not filed or declared effective within the time periods required by the registration rights agreement or is declared effective but thereafter ceases to be effective or usable (subject to certain exceptions),

the interest rate borne by the notes as to which the registration default has occurred will be increased by 0.25% per annum upon the occurrence of a registration default. This rate will continue to increase by 0.25% each 90-day period that the additional interest (as defined below) continues to accrue under any such circumstance. However, the maximum total increase in the interest rate will in no event exceed one percent (1.0%) per year. We refer to this increase in the interest rate on the notes as “additional interest.” Such interest is payable in addition to any other interest payable from time to time with respect to the notes in cash on each interest payment date to the holders of record for such interest payment date. After the cure of registration defaults, the accrual of additional interest will stop and the interest rate will revert to the original rate.

      Under certain circumstances, we may delay the filing or the effectiveness of the exchange offer or the shelf registration and shall not be required to maintain its effectiveness or amend or supplement it for a period of up to 60 days during any 12-month period. Any delay period will not alter our obligation to pay liquidated damages with respect to a registration default.

      The sole remedy available to the holders of the original notes will be the immediate increase in the interest rate on the original notes as described above. Any amounts of additional interest due as described above will be payable in cash on the same interest payment dates as the original notes.

Expiration date; extensions; amendment

      We will keep the exchange offer open for not less than 30 days, or longer if required by applicable law, after the date on which notice of the exchange offer is mailed to the holders of the original notes. The term “expiration date” means the expiration date set forth on the cover page of this prospectus, unless we extend the exchange offer, in which case the term “expiration date” means the latest date to which the exchange offer is extended.

      In order to extend the expiration date, we will notify the exchange agent of any extension by oral or written notice and will issue a public announcement of the extension, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.

      We reserve the right

•  to delay accepting any original notes and extend the exchange offer or to terminate the exchange offer and not accept original notes not previously accepted if any of the conditions set forth under “Conditions” shall have occurred and shall not have been waived by us, if permitted to be waived by us, by giving oral or written notice of such delay, extension or termination to the exchange agent; or

•  to amend the terms of the exchange offer in any manner deemed by us to be advantageous to the holders of the original notes. (We are required to extend the offering period for certain types of changes in the terms of the exchange offer, for example, a change in the consideration offered or percentage of original notes sought for tender.)

      All conditions set forth under “Conditions,” except such conditions that involve regulatory approvals, must be satisfied or waived prior to the expiration date.

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      Any delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice. If the exchange offer is amended in a manner determined by us to constitute a material change, we will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the original notes of such amendment. In the event of a material change in the Exchange Offer, including our waiver of any material condition, we will extend the Exchange Offer, if necessary, so that at least five business days remain prior to the expiration date following notice of the material change.

      Without limiting the manner in which we may choose to make a public announcement of any extension, amendment or termination of the exchange offer, we will not be obligated to publish, advertise, or otherwise communicate any such announcement, other than by making a timely release to an appropriate news agency.

EXCHANGE OFFER PROCEDURES

      To tender in the exchange offer, a holder must complete, sign and date the letter of transmittal, or a facsimile thereof, have the signatures on the letter of transmittal guaranteed if required by instruction 2 of the letter of transmittal, and mail or otherwise deliver the letter of transmittal or such facsimile or an agent’s message in connection with a book entry transfer, together with the original notes and any other required documents. To be validly tendered, such documents must reach the exchange agent before 5:00 p.m., New York City time, on the expiration date. Delivery of the original notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the exchange agent prior to the expiration date.

      The term “agent’s message” means a message, transmitted by a book-entry transfer facility to, and received by, the exchange agent, forming a part of a confirmation of a book-entry transfer, which states that such book-entry transfer facility has received an express acknowledgment from the participant in such book-entry transfer facility tendering the original notes that such participant has received and agrees to be bound by the terms of the letter of transmittal and that we may enforce such agreement against such participant.

      The tender by a holder of original notes will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.

      Delivery of all documents must be made to the exchange agent at its address set forth below. Holders may also request their respective brokers, dealers, commercial banks, trust companies or nominees to effect such tender for such holders.

      Each broker-dealer that receives new notes for its own account in exchange for original notes, where such original notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. See “Plan of distribution.”

      The method of delivery of original notes and the letter of transmittal and all other required documents to the exchange agent is at the election and risk of the holders. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to the exchange agent before 5:00 p.m., New York City time, on the expiration date. No letter of transmittal or original notes should be sent to us.

      Only a holder of original notes may tender original notes in the exchange offer. The term “holder” with respect to the exchange offer means any person in whose name original notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder.

      Any beneficial holder whose original notes are registered in the name of its broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on its behalf. If such beneficial holder wishes to

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tender on its own behalf, such registered holder must, prior to completing and executing the letter of transmittal and delivering its original notes, either make appropriate arrangements to register ownership of the original notes in such holder’s name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time.

      Signatures on a letter of transmittal or a notice of withdrawal, must be guaranteed by an “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, unless the original notes are tendered:

•  by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal or

•  for the account of an eligible guarantor institution.

      In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, such guarantee must be by an eligible guarantor institution.

      If a letter of transmittal is signed by a person other than the registered holder of any original notes listed therein, such original notes must be endorsed or accompanied by appropriate bond powers and a proxy which authorizes such person to tender the original notes on behalf of the registered holder, in each case signed as the name of the registered holder or holders appears on the original notes.

      If a letter of transmittal or any original notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by us, evidence satisfactory to us of their authority so to act must be submitted with such letter of transmittal.

      All questions as to the validity, form, eligibility, including time of receipt, and withdrawal of the tendered original notes will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all original notes not properly tendered or any original notes our acceptance of which, in the opinion of our counsel, would be unlawful. We also reserve the absolute right to waive any irregularities or defects as to the original notes. If we waive any condition of the notes for any note holder, we will waive such condition for all note holders. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of original notes must be cured within such time as we shall determine. None of us, the exchange agent or any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of original notes, nor shall any of them incur any liability for failure to give such notification. Tenders of original notes will not be deemed to have been made until such irregularities have been cured or waived. Any original notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders of original notes without cost to such holder, unless otherwise provided in the relevant letter of transmittal, promptly following the expiration date.

      In addition, we reserve the absolute right in our sole discretion to:

•  purchase or make offers for any original notes that remain outstanding subsequent to the expiration date or, as set forth under “Conditions,” to terminate the exchange offer in accordance with the terms of the registration rights agreement; and

•  to the extent permitted by applicable law, purchase original notes in the open market, in privately negotiated transactions or otherwise.

      The terms of any such purchases or offers may differ from the terms of the exchange offer.

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      By tendering, each holder will represent to us that, among other things:

•  such holder or other person is not our “affiliate,” as defined under Rule 405 of the Securities Act, or, if such holder or other person is such an affiliate, will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable;

•  the new notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of such holder or other person;

•  neither such holder or other person has any arrangement or understanding with any person to participate in the distribution of such new notes in violation of the Securities Act; and

•  if such holder is not a broker-dealer, neither such holder nor such other person is engaged in or intends to engage in a distribution of the new notes.

      We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the original notes at The Depository Trust Company for the purpose of facilitating the exchange offer, and subject to the establishment of such accounts, any financial institution that is a participant in The Depository Trust Company’s system may make book-entry delivery of original notes by causing The Depository Trust Company to transfer such original notes into the exchange agent’s account with respect to the original notes in accordance with The Depository Trust Company’s procedures for such transfer. Although delivery of the original notes may be effected through book-entry transfer into the exchange agent’s account at The Depository Trust Company, a letter of transmittal properly completed and duly executed with any required signature guarantee, or an agent’s message in lieu of a letter of transmittal, and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address set forth below on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to The Depository Trust Company does not constitute delivery to the exchange agent.

GUARANTEED DELIVERY PROCEDURES

      Holders who wish to tender their original notes and

•  whose original notes are not immediately available; or

•  who cannot deliver their original notes, the letter of transmittal or any other required documents to the exchange agent prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer; or

•  who cannot complete the procedures for delivery by book-entry transfer prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer, may effect a tender if:

•  the tender is made by or through an “eligible guarantor institution”;

•  prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer, the exchange agent receives from such “eligible guarantor institution” a properly completed and duly executed Notice of Guaranteed Delivery, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the original notes, the certificate number or numbers of such original notes and the principal amount of original notes tendered, stating that the tender is being made thereby, and guaranteeing that, within three business days after the expiration date, a letter of transmittal, or facsimile thereof or agent’s message in lieu of such letter of transmittal, together with the certificate(s) representing the original notes to be tendered in proper form for transfer and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent; and

•  a properly completed and duly executed letter of transmittal (or facsimile thereof) together with the certificate(s) representing all tendered original notes in proper form for transfer or an agent’s message in the case of delivery by book-entry transfer and all other documents required by the

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letter of transmittal are received by the exchange agent within three business days after the expiration date.

WITHDRAWAL OF TENDERS

      Except as otherwise provided in this prospectus, tenders of original notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date.

      To withdraw a tender of original notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in this prospectus prior to 5:00 p.m., New York City time, on the expiration date. Any such notice of withdrawal must:

•  specify the name of the depositor, who is the person having deposited the original notes to be withdrawn;

•  identify the original notes to be withdrawn, including the certificate number or numbers and principal amount of such original notes or, in the case of original notes transferred by book-entry transfer, the name and number of the account at The Depository Trust Company to be credited;

•  be signed by the depositor in the same manner as the original signature on the letter of transmittal by which such original notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the original notes register the transfer of such original notes into the name of the depositor withdrawing the tender; and

•  specify the name in which any such original notes are to be registered, if different from that of the depositor.

      All questions as to the validity, form and eligibility, including time of receipt, of such withdrawal notices will be determined by us, and our determination shall be final and binding on all parties. Any original notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no new notes will be issued with respect to the original notes withdrawn unless the original notes so withdrawn are validly retendered. Any original notes which have been properly tendered but which are not accepted for exchange will be returned to its holder without cost to such holder promptly after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn original notes may be retendered by following one of the procedures described above under “Exchange Offer Procedures” at any time prior to the expiration date.

CONDITIONS

      Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or exchange, any new notes for any original notes, and may terminate or amend the exchange offer before the expiration date, if:

•  in the opinion of our counsel, the exchange offer or any part thereof contemplated herein violates any applicable law or interpretation of the staff of the SEC;

•  any action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offer or any material adverse development shall have occurred in any such action or proceeding with respect to us; or

•  any governmental approval has not been obtained, which approval we shall deem necessary for the consummation of the exchange offer as contemplated hereby.

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      If any of the foregoing conditions exist, we may, in our reasonable discretion:

•  refuse to accept any original notes and return all tendered original notes to the tendering holders;

•  extend the exchange offer and retain all original notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders who tendered such original notes to withdraw their tendered original notes; or

•  waive such condition, if permissible, with respect to the exchange offer and accept all properly tendered original notes which have not been withdrawn. If such waiver constitutes a material change to the exchange offer, we will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the holders, and we will extend the exchange offer, if necessary, so that at least five business days remain prior to the expiration date following the date of the prospectus supplement.

EXCHANGE AGENT

      We have appointed U.S. Bank National Association as exchange agent for the exchange offer. Please direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to U.S. Bank National Association addressed as follows:

By Mail, Overnight Courier or Hand Delivery:

U.S. Bank National Association

60 Livingston Avenue

EP-MN-WS2N

St. Paul, MN 55107

Attention: Specialized Finance Department

Reference: Ashton Woods USA L.L.C. Exchange

By Facsimile:

(651) 495-8158

Attention: Specialized Finance Department

Reference: Ashton Woods USA L.L.C. Exchange

To Confirm by Telephone or for Information:

(800) 934-6802

Reference: Ashton Woods USA L.L.C. Exchange

      U.S. Bank National Association is the trustee under the indenture governing the original notes and the new notes.

FEES AND EXPENSES

      We will pay the expenses of soliciting original notes for exchange. The principal solicitation is being made by mail by U.S. Bank National Association as exchange agent. However, additional solicitations may be made by telephone, facsimile or in person by our officers and regular employees and our affiliates and by persons so engaged by the exchange agent.

      We will pay U.S. Bank National Association as exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith and pay other registration expenses, including fees and expenses of the trustee under the indenture, filing fees, blue sky fees and printing and distribution expenses.

      We will pay all transfer taxes, if any, applicable to the exchange of the original notes in connection with the exchange offer. If, however, certificates representing the new notes or the original notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the

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name of, any person other than the registered holder of the original notes tendered, or if tendered original notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of the original notes in this exchange offer, then the amount of any such transfer taxes, whether imposed on the registered holder or any other person, will be payable by the tendering holder.

ACCOUNTING TREATMENT

      The new notes will be recorded at the same carrying value as the original notes as reflected in our accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by us. The expenses of the exchange offer and the unamortized expenses related to the issuance of the original notes will be amortized over the term of the new notes.

CONSEQUENCES OF FAILURE TO EXCHANGE

      Holders of original notes who are eligible to participate in the exchange offer but who do not tender their original notes will not have any further registration rights, and their original notes will continue to be subject to restrictions on transfer of the original notes as described in the legend on the original notes as a consequence of the issuance of the original notes under exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the original notes may not be offered or sold, unless registered under the Securities Act, except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws.

REGULATORY APPROVALS

      We do not believe that the receipt of any material federal or state regulatory approval will be necessary in connection with the exchange offer, other than the effectiveness of the exchange offer registration statement under the Securities Act.

OTHER

      Participation in the exchange offer is voluntary and holders of original notes should carefully consider whether to accept the terms and condition of this exchange offer. Holders of the original notes are urged to consult their financial and tax advisors in making their own decisions on what action to take with respect to the exchange offer.

      No affiliate of the Company, the Co-Issuer or any subsidiary guarantor has any interest, direct or indirect, in the exchange offer.

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Use of proceeds

       This exchange offer is intended to satisfy our obligations to register an exchange offer of the new notes for the original notes required by the registration rights agreement entered into in connection with the issuance and sale of the original notes. We will not receive any cash proceeds from the issuance of the new notes. In consideration for issuing the new notes, we will receive the outstanding original notes in like principal amount, the terms of which are identical in all material respects to the terms of the new notes, except as otherwise described herein. The original notes surrendered in exchange for the new notes will be retired and cancelled and cannot be reissued.

      The net proceeds from the sale of the original notes after deducting the discounts and commissions to the initial purchasers and estimated offering expenses were approximately $121.2 million. The net proceeds that we received from the sale of the original notes was used to repay $108.3 million outstanding under our senior unsecured credit facility and $12.9 million were used to repay related party debt.

31

Capitalization

       The following table sets forth our cash and cash equivalents and our capitalization as of November 30, 2005. This table should be read in conjunction with our historical financial statements and related notes and “Selected historical consolidated financial and operating data” and “Management’s discussion and analysis of financial condition and results of operations” included elsewhere in this prospectus.

			As of
			November 30, 2005
			(In thousands)
Cash and cash equivalents			$	37
Debt (including current portion):
	Senior unsecured credit facility		$	46,839	(1)
	Original notes			125,000
Total debt				171,839
Members’ equity				155,206
		Total capitalization	$	327,045

(1)  We had availability of $178.2 million under our senior unsecured credit facility as of November 30, 2005 (net of $9.3 million in outstanding undrawn letters of credit).

32

Selected historical consolidated financial and operating data

       The selected consolidated financial data presented below is derived from our audited consolidated financial statements as of May 31, 2004, and 2005 and for each of the years in the three-year period ended May 31, 2005, which are included elsewhere in this prospectus. The selected consolidated financial data as of May 31, 2001, 2002 and 2003 and for each of the years in the two-year period ended May 31, 2002 is derived from our audited financial statements which are not included in this prospectus. The quarterly financial data presented below is derived from our unaudited consolidated financial statements as of, and for each of the six-month periods ended November 30, 2004 and November 30, 2005. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of our financial position and the results for those periods.

      The data set forth below should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this prospectus and “Management’s discussion and analysis of financial condition and results of operations” included elsewhere in this prospectus.

															Six Months Ended
		Fiscal Years Ended May 31,
															November 30,		November 30,
		2005			2004			2003			2002		2001		2005		2004
															(Unaudited)
		(Dollars in thousands)
Statement of Earnings Data:
Revenues
	Home sales	$	461,322		$	377,265		$	287,178		$	288,111	$	301,644	$	241,005	$	209,987
	Land sales		37,005			34,561			19,705			16,880		13,040		23,678		26,920
	Other		1,279			974			703			1,173		1,364		514		664
			499,606			412,800			307,586			306,164		316,048		265,197		237,571
Cost of sales
	Home sales		364,469			299,940			237,427			240,820		254,532		190,253		167,385
	Land sales		17,183			23,249			15,920			11,732		9,076		9,851		12,897
			381,652			323,189			253,347			252,552		263,608		200,104		180,282
Gross profit
	Home sales		96,853			77,325			49,751			47,291		47,112		50,752		42,602
	Land sales		19,822			11,312			3,785			5,148		3,964		13,827		14,023
	Other		1,279			974			703			1,173		1,364		514		664
			117,954			89,611			54,239			53,612		52,440		65,093		57,289
Expenses
	Sales and marketing		26,503			23,809			18,730			18,663		19,330		14,683		13,273
	General and administrative		28,861			20,246			16,560			16,231		14,322		18,124		12,281
	Franchise taxes		439			361			389			406		551		170		148
	Depreciation and amortization		3,870			3,915			3,574			4,662		5,160		2,442		1,821
			59,673			48,331			39,253			39,962		39,363		35,419		27,523
Earnings in unconsolidated entities			1,571			1,259			1,523			543		353		1,188		549
Minority interest in (earnings) losses			(398	)		(112	)		(12	)		—		175		—		(398	)
Net income(1)		$	59,454		$	42,427		$	16,497		$	14,193	$	13,605	$	30,862	$	29,917

33

																Six Months Ended
	Fiscal Years Ended May 31,
																November 30,			November 30,
	2005			2004			2003			2002			2001			2005			2004
																(Unaudited)
	(Dollars in thousands)
Balance Sheet Data (end of period):
Cash and cash equivalents	$	105		$	625		$	1,426		$	6,471		$	2,539		$	37		$	3,486
Inventory		255,993			205,684			196,920			197,891			183,250			347,788			225,728
Total assets		309,443			240,599			213,638			213,230			201,943			403,686			265,531
Total debt		110,535			89,568			108,718			117,511			113,634			171,839			98,696
Members’ equity		129,598			103,811			78,414			68,550			58,631			155,206			110,827
Supplemental Financial Data:
EBITDA(2)	$	68,553		$	52,525		$	27,920		$	27,982		$	31,671		$	35,920		$	34,631
EBITDA margin(2)(3)		13.72	%		12.72	%		9.08	%		9.14	%		10.02	%		13.5	%		14.6	%
Interest incurred(4)	$	4,840		$	4,932		$	5,796		$	7,960		$	10,243		$	5,396		$	2,060
Ratio of earnings to fixed charges(5)		12.53	x		9.35	x		4.00	x		2.83	x		2.49	x		5.93	x		14.89	x
Total debt to EBITDA		1.61	x		1.71	x		3.89	x		4.20	x		3.59	x		nm			nm
Total debt to total capitalization		46.0	%		46.3	%		58.1	%		63.2	%		66.0	%		52.5	%		47.1	%
Operating Data:
Net new home orders (units)		2,230			2,135			1,331			1,150			1,318			1,239			888
Homes closed (units)(6)		1,894			1,697			1,241			1,227			1,268			924			898
Average sales price per home closed	$	244		$	222		$	231		$	235		$	238		$	264		$	240
Backlog (units) at end of period		1,334			998			560			470			547			1,649			988
Sales value of backlog	$	369,949		$	240,346		$	122,627		$	110,968		$	119,758		$	492,879		$	263,311

(1)

Because we are structured as a limited liability company, income tax obligations are paid by our members and are not borne by us. Therefore, our net income is higher than it would be if we were structured as a subchapter C corporation. However, historically we have made distributions to our members in amounts necessary for them to pay income taxes attributable to them.

(2)

EBITDA (earnings before interest, taxes, depreciation and amortization) is calculated by adding previously capitalized interest amortized to costs of sales, franchise taxes, depreciation and amortization to net income. EBITDA is not a financial measure under generally accepted accounting principles in the United States, or GAAP. EBITDA should not be considered an alternative to net income determined in accordance with GAAP as an indicator of operating performance, nor an alternative to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Because some analysts and companies may not calculate EBITDA in the same manner as us, the EBITDA information in this prospectus may not be comparable to similar presentations by others.

EBITDA is a measure commonly used in the homebuilding industry and is presented as a useful adjunct to net income and other measurements under GAAP because it is a meaningful measure of a company’s performance, as interest, taxes, depreciation and amortization can vary significantly between companies due in part to differences in structure, accounting policies, tax strategies, levels of indebtedness, capital purchasing practices and interest rates. EBITDA also assists management in evaluating operating performance, and we believe that it is a useful measure for investors to compare us with our competitors.

34

EBITDA does have certain limitations as a tool for measuring Company performance from period to period, because that performance is affected by the use of cash to pay interest and taxes. These amounts, as well as depreciation and amortization, can fluctuate significantly over time due to our debt levels, income levels and other performance issues, which is not apparent if EBITDA is used as an evaluation tool. To compensate for these limitations, our management uses both EBITDA and net income, the most directly comparable GAAP measure, to evaluate our performance.

The following is a reconciliation of EBITDA to net income, the most directly comparable GAAP measure:

											Six Months Ended
	Fiscal Years Ended May 31,										November 30,		November 30,
	2005		2004		2003		2002		2001		2005		2004
											(Unaudited)
	(Dollars in thousands)
Net income	$	59,454	$	42,427	$	16,497	$	14,193	$	13,605	$	30,862	$	29,917
Franchise taxes		439		361		389		406		551		170		148
Depreciation and amortization		3,870		3,915		3,574		4,662		5,160		2,442		1,821
Interest expense in cost of sales		4,790		5,822		7,460		8,721		12,355		2,446		2,745
EBITDA	$	68,553	$	52,525	$	27,920	$	27,982	$	31,671	$	35,920	$	34,631

(3)	EBITDA margin is calculated by dividing EBITDA by total revenues.
(4)	Interest incurred for any period is the aggregate amount of interest which is capitalized during such period.
(5)	Computed by dividing earnings by fixed charges. Earnings consist of (i) income from operations before taxes, (ii) amortization of previously capitalized interest and (iii) fixed charges, exclusive of capitalized interest cost. Fixed charges consist of (i) interest incurred, (ii) amortization of deferred loan costs and (iii) an estimate of the interest within rental expense.
(6)	A home is included in “homes closed” when title is transferred to the buyer. Revenues and cost of sales for a home are recognized at the date of closing.

35

Management’s discussion and analysis of financial condition and results of operations

OVERVIEW

      We are one of the largest private homebuilders in the United States based on number of home closings and revenues. We design, build and market high-quality single-family detached homes, townhomes and stacked-flat condominiums under the Ashton Woods Homes brand name. We currently operate in Atlanta, Dallas, Houston, Orlando and Phoenix and are establishing homebuilding operations in Tampa and Denver. These cities represent seven of the 20 largest new residential housing markets in the United States according to the U.S. Census Bureau. We have been in operation for over 15 years and serve a broad customer base including first-time buyers and first- and second-time move-up buyers. We focus on achieving the highest standards in design, quality and customer satisfaction. We have received numerous awards, including the 2005 and 2004 J.D. Power Award for Highest in Customer Satisfaction with New Homebuilders in Atlanta, and are ranked in the top 10% of all homebuilders nationally in customer satisfaction in 2005 and 2004 by a nationally recognized survey company not affiliated with us.

      Our revenues are primarily generated from designing, building and marketing single-family detached homes, townhomes, and stacked-flat condominiums in the five states and seven markets we currently serve. We also acquire and develop land for use in our homebuilding operations and for sale to others. From time to time, we elect to sell parcels of land or finished lots that do not fit with our home development program. These land sales are incidental to our business of selling and building homes and have fluctuated significantly in the past. We anticipate continuing to sell parcels of land and finished lots in the future when circumstances warrant; however, we do not anticipate future sales of land being as significant a part of our revenues as they have been in the past. We expect that the significance of land sales revenue will fluctuate from quarter to quarter.

      We also conduct mortgage origination and title services for the benefit of our homebuilding operation. These ancillary services are carried out through separate jointly-owned entities, which are operated by our partners in these entities. The earnings from these jointly-owned entities are recorded using the equity method of accounting, and the earnings are a component of the line item “Earnings in unconsolidated entities” on our income statement. We have a 49.9% interest in an entity that offers mortgage financing to all of its buyers and in the past has offered refinancing services to others. The mortgage operation’s revenues consist primarily of origination and premium fee income, interest income and the gain on sale of the mortgages. We also offer title services to our homebuyers in Dallas and Houston through 49.0% ownership interests in two title companies. The companies are managed by, and all underwriting risks associated with the title are transferred to, the majority owners.

      Key financial and operating highlights for the six months ended November 30, 2005 are as follows:

•  Strong demand for homes in the our markets, due to our strong land positions and competitive product offerings, continued into the second fiscal quarter ended November 30, 2005. Net new home orders for the three and six months ended November 30, 2005 reached record levels of 586 and 1,239, respectively, representing increases of 44.0% and 39.5% as compared to the same periods a year ago. Homes closed during the second quarter and first six months of fiscal year 2006 increased 18.1% and 2.9%, respectively.

•  Due to the record level of net new home orders during the three and six months ended November 30, 2005, backlog at November 30, 2005 reached the highest level in our history at 1,649 homes with a sales value of $492.9 million, representing a 66.9% increase in the number of homes in backlog and an 87.2% increase in the sales value of backlog as compared to November 30, 2004. We expect, assuming no significant change in market conditions or mortgage interest rates, approximately 80.0%-85.0% of the number of units in our backlog will close under existing sales contracts during the remaining months of fiscal year 2006. Backlog represents the number and value of new sales orders net of any cancellations that may have occurred during the reporting period. Historically, we have experienced a cancellation rate between 15%-20% of the gross new orders recorded in any reporting period.

36

•  Net income for the three and six months ended November 30, 2005 increased to $24.8 million and $30.9 million, respectively, or 217.9% and 3.3%, compared to the same periods in the prior fiscal year.

•  During the second fiscal quarter, we completed the issuance of $125.0 million 9.5% Senior Subordinated Notes due in 2015 in a private placement, pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended. The net proceeds were used to repay amounts outstanding under our senior unsecured credit facility and to repay certain related party debt.

      Key financial and operating highlights for the fiscal year ended May 31, 2005 were as follows:

•  Net income for the fiscal year ended May 31, 2005 increased 40.1% to $59.5 million compared to $42.4 million in the prior fiscal year.

•  Continued strong demand for homes in our markets in fiscal year 2005 led to a record level of net new home orders of 2,230 homes, which enabled us to close a record 1,894 homes in fiscal year 2005. Backlog at May 31, 2005 also finished at a record level of 1,334 homes with a sales value of $369.9 million, representing a 33.7% increase of homes in backlog and a 53.9% increase in the sales value of backlog as compared to fiscal year 2004.

•  We continued our geographic expansion with the start-up of homebuilding operations in two new markets, Tampa, Florida and Denver, Colorado. We expect to begin home closings in both markets during the second half of fiscal year 2006.

•  We entered into a new four-year $225.0 million senior unsecured credit facility (subject to borrowing base availability) with the ability to expand to $300.0 million with lender approval.

      As a result of a series of hurricanes, we experienced significant delays in land development and home construction in the first half of fiscal year 2005. Several communities in both Atlanta and Orlando have been delayed several months causing expected net new home orders and homes closed to be deferred into fiscal year 2006. In addition, we have experienced delays in all our existing markets in securing necessary government approvals for the commencement of land development and home construction. The primary cause of the delays in obtaining approvals has been the backlog of applications filed by us and other builders with the local governments in a number of our markets. These delays have also resulted in the deferral of expected sales and closings into fiscal year 2006.

      Key financial and operating highlights for our fiscal years ended May 31, 2004 and 2003 were as follows:

•  Net income increased 157.2% and 16.2% in fiscal years 2004 and 2003, respectively, due to the improvements in operating margins and the sale of land and lots.

•  Strong demand for homes in our markets in fiscal year 2004, particularly during the first half of the year, led to the highest level of annual net new home orders in our history at that time, totaling 2,135 homes. These strong orders enabled us to end the fiscal year with a then record backlog of 998 homes valued at $240.3 million, as compared to our backlog at May 31, 2003 of 560 homes valued at $122.6 million, representing a year-over-year unit increase of 78.2% and a value increase of 96.0%.

      As noted with respect to each of the fiscal periods discussed above, our backlog has continued to increase due to strong demand. Our significant backlog provides us with visibility towards future homes sales revenues, gross margins and earnings and enables us to better plan for community development and supply purchases. However, gross margins and earnings could be affected by changes in the costs of raw materials used in construction of our homes. For example, increases in the costs of raw materials for homes in backlog would decrease the expected earnings on these homes upon closing.

37

RESULTS OF OPERATIONS

      The environment for first-time and move-up homebuyers remained generally stable and favorable during fiscal year 2005 and the first six months of fiscal year 2006. However, interest rates have increased during the past several months and mortgage lending standards have tightened as well, producing less favorable conditions for homebuyers. However, we believe that there is continued strength in consumer confidence, population growth and the local drivers of housing demand such as job growth, unemployment rates and income growth. Additionally, we believe that the supply of new homes is constrained due to the availability of land and lots suitable for residential construction in many markets, which has contributed to home price appreciation. In addition, because the homebuilding industry in the United States is highly fragmented, we have been able to capitalize on the benefits of our size, such as our capital strength and access to lower material, labor and capital costs, to generate continued profitable growth in our homebuilding operations on an annual basis.

      The following tables set forth the key operating and financial data for our operations as of and for the fiscal years ended May 31, 2003, 2004 and 2005 and as of and for the three-month and six-month periods ended November 30, 2004 and November 30, 2005.

											Three Months Ended				Six Months Ended
		Fiscal Years Ended May 31,									November 30,				November 30,
		2005			2004			2003			2005		2004		2005		2004
		(Dollars in thousands)
Statement of Earnings Data:
Revenues
	Home sales	$	461,322		$	377,265		$	287,178		$	134,551	$	103,711	$	241,005	$	209,987
	Land sales		37,005			34,561			19,705			23,609		3,081		23,678		26,920
	Other		1,279			974			703			169		217		514		664
			499,606			412,800			307,586			158,329		107,009		265,197		237,571
Cost of sales
	Home sales		364,469			299,940			237,427			105,826		83,516		190,253		167,385
	Land sales		17,183			23,249			15,920			9,665		2,698		9,851		12,897
			381,652			323,189			253,347			115,491		86,214		200,104		180,282
Gross profit
	Home sales		96,853			77,325			49,751			28,725		20,195		50,752		42,602
	Land sales		19,822			11,312			3,785			13,944		383		13,827		14,023
	Other		1,279			974			703			169		217		514		664
			117,954			89,611			54,239			42,838		20,795		65,093		57,289
Expenses
	Sales and marketing		26,503			23,809			18,730			7,445		6,331		14,683		13,273
	General and administrative		28,861			20,246			16,560			9,826		5,935		18,124		12,281
	Franchise taxes		439			361			389			80		60		170		148
	Depreciation and amortization		3,870			3,915			3,574			1,335		924		2,442		1,821
			59,673			48,331			39,253			18,686		13,250		35,419		27,523
Earnings in unconsolidated entities			1,571			1,259			1,523			633		210		1,188		549
Minority interest in earnings			(398	)		(112	)		(12	)		—		—		—		(398	)
Net income		$	59,454		$	42,427		$	16,497		$	24,785	$	7,755	$	30,862	$	29,917

38

											Three Months Ended						Six Months Ended
		Fiscal Years Ended May 31,									November 30,						November 30,
		2005			2004			2003			2005			2004			2005			2004
		(Dollars in thousands)
Other Data:
	Homes closed		1,894			1,697			1,241			510			432			924			898
	Average sales price per home closed	$	244		$	222		$	231		$	264		$	240		$	261		$	234
	Home gross margin(1)		21.0	%		20.5	%		17.3	%		21.4	%		19.5	%		21.1	%		20.3	%
	Ratio of SG&A expenses to revenues		11.1	%		10.7	%		11.5	%		10.9	%		11.5	%		12.4	%		10.8	%
	Ratio of net income to revenues		11.9	%		10.3	%		5.4	%		15.7	%		7.2	%		11.6	%		12.6	%
Backlog (units) at end of period			1,334			998			560			—			—			1,649			988
Sales value of backlog at end of period		$	369,949		$	240,346		$	122,627		$	—		$	—		$	492,879		$	263,311
Active communities at end of period			46			44			43			—			—			52			45

(1)  Home gross margins is defined as home sales revenues less cost of home sales, which includes land, house construction costs, indirect costs of construction, capitalized interest, a reserve for warranty expense and closing costs, as a percent of home sales revenue.

							Three Months Ended				Six Months Ended
	Fiscal Years Ended May 31,						November 30,				November 30,
	2005		2004		2003		2005		2004		2005		2004
Net new home orders (units):
Atlanta		503		615		283		124		92		282		185
Dallas		519		478		453		172		120		359		252
Houston		409		364		375		98		79		195		159
Orlando		450		246		123		106		57		194		116
Phoenix		349		432		97		78		59		201		176
Tampa		—		—		—		8		—		8		—
Company total		2,230		2,135		1,331		586		407		1,239		888
Homes closed (units):
Atlanta		461		492		297		128		125		215		252
Dallas		494		437		446		117		116		231		238
Houston		342		372		410		109		78		220		173
Orlando		190		209		67		98		27		144		67
Phoenix		407		187		21		58		86		114		168
Company total		1,894		1,697		1,241		510		432		924		898
Average sales price per home closed (dollars in thousands):
Atlanta	$	272	$	271	$	318	$	258	$	273	$	271	$	273
Dallas		199		189		188		216		198		219		195
Houston		211		213		215		220		210		225		205

39

							Three Months Ended				Six Months Ended
	Fiscal Years Ended May 31,						November 30,				November 30,
	2005		2004		2003		2005		2004		2005		2004
Orlando		242		196		249		275		231		269		222
Phoenix		294		220		207		439		279		386		264
Company average	$	244	$	222	$	231	$	264	$	240	$	261	$	234

      The following table sets forth key operating data for our operations as of the fiscal years ended May 31, 2003, 2004 and 2005 and as of the six-month periods ended November 30, 2004 and November 30, 2005.

	May 31,						November 30,
	2005		2004		2003		2005		2004
Backlog (units) at end of period:
Atlanta		260		218		95		327		151
Dallas		231		206		165		359		220
Houston		208		141		149		183		127
Orlando		372		112		75		422		161
Phoenix		263		321		76		350		329
Tampa		—		—		—		8		—
Company total		1,334		998		560		1,649		988
Sales value of backlog at end of period (dollars in thousands):
Atlanta	$	57,843	$	59,400	$	28,945	$	76,672	$	40,940
Dallas		50,955		40,990		30,207		76,842		46,493
Houston		47,632		30,006		32,610		40,425		29,524
Orlando		97,274		24,834		14,548		122,969		40,873
Phoenix		116,245		85,116		16,317		172,157		105,481
Tampa		—		—		—		3,814		—
Company total	$	369,949	$	240,346	$	122,627	$	492,879	$	263,311
Active communities at end of period:
Atlanta		8		9		11		10		7
Dallas		14		12		12		15		15
Houston		12		14		15		12		11
Orlando		5		3		3		5		5
Phoenix		7		6		2		9		7
Tampa		—		—		—		1		—
Company total		46		44		43		52		45

Three and Six Months Ended November 30, 2005 Compared to Three and Six Months Ended November 30, 2004

      Revenues. Revenues increased by $51.3 million or 48.0% for the three months ended November 30, 2005, compared to the same period in the prior fiscal year as we experienced an increase in home sales revenue from $103.7 million to $134.6 million and an increase in land sales revenue from $3.1 million to $23.6 million. We closed 510 homes in the three months ended November 30, 2005, compared to 432 home closings in the same period in 2004, an increase of 18.1%. Home closings increased in all markets as compared to the same period in 2004 with the exception of Phoenix, which declined by 28 home closings

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or 32.6% due to delays created by shortages of subcontractors in the market. The average sales price of homes closed increased by 10% to $264,000 as compared to $240,000 for the prior year period. Since land sales are incidental to our business of building and selling homes, we generally sell only parcels of land and finished lots that do not fit with our home development program. The increase in land sales revenue was a result of our having identified additional parcels of land and finished lots that did not fit with our home development program during the three months ended November 30, 2005 as compared to the same period during the prior fiscal year.

      Revenues increased by $27.6 million or 11.6% for the six months ended November 30, 2005, as compared to the same period in the prior fiscal year. We closed 924 homes in the six months ended November 30, 2005, compared to 898 home closings in the same period in 2004, an increase of 2.9%. Home closings declined in Atlanta, Dallas and Phoenix compared to the same period in 2004 due in part to land development delays experienced in Atlanta which, in turn, delayed the start of construction and home closings into the third quarter of fiscal year 2006, and shortages of subcontractors in Phoenix causing delays in the completion of home construction into the third and fourth quarters of fiscal year 2006. The average sales price of homes closed increased by 11.5% to $261,000 as compared to $234,000 for the prior year period. This increase was offset by a decline in land sales revenue in the six months ended November 30, 2005 of $3.2 million. The decrease in land sales revenue was a result of our having identified fewer parcels of land and finished lots that did not fit with our home development program during the six months ended November 30, 2005 as compared to the same period during the prior fiscal year.

      Gross Margins. Home gross margins were 21.4% for the three months ended November 30, 2005, compared with 19.5% in the same period a year ago. The increase in home gross margins was due to closing a higher percentage of homes in Orlando, offset somewhat by closing a lower percentage of homes in Phoenix. We have experienced more pricing strength in our Orlando and Phoenix markets than several of our other markets due to the continued strength of the housing markets in these locations. Home gross margins were 21.1% for the six months ended November 30, 2005, compared with 20.3% in the same period a year ago.

      Sales and Marketing Expenses. Sales and marketing expenses, which include sales commissions, advertising, amortization of sales office expenditures and model furnishings, model expenses and other costs, totaled $7.4 million during the three-month period ended November 30, 2005, compared to $6.3 million in the three month period ended November 30, 2004. The increase of 17.5%, or $1.1 million, was primarily due to continued growth in our existing markets and to a lesser extent to start-up expenses incurred in Tampa.

      Sales and marketing expenses totaled $14.7 million during the six months ended November 30, 2005, compared to $13.3 million in the six months ended November 30, 2004. The increase of 10.5%, or $1.4 million, was primarily due to the continued growth in our existing markets and to a lesser extent to start-up expenses incurred in Tampa.

      General and Administrative Expenses. General and administrative expenses totaled $9.8 million in the three months ended November 30, 2005, compared with $5.9 million in three months ended November 30, 2004. The increase of $3.9 million represents a 66.1% growth in these costs. General and administrative expenses totaled $18.1 million in the six months ended November 30, 2005, compared with $12.3 million in the six months ended November 30, 2004. The increase of $5.8 million represents a 47.2% growth in these costs. These costs were driven primarily by the investment in start-up divisional operations in Tampa and Denver, continued operational growth in Orlando and Phoenix and the commensurate increases in corporate staff to support these operations.

      Net Income. As compared to the three month period ended November 30, 2004, net income in the three months ended November 30, 2005, increased 217.9% or $17.0 million. The increase resulted primarily from the increase in land sale income in Atlanta, Denver and Orlando, the increase in home closings and an increase in average sales price per home of 10% from approximately $240,000 per home sale in the prior period to $264,000 in the current period. Total sales and marketing expenses increased

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$1.1 million due primarily to continued growth in our existing markets and to a lesser extent to start-up expenses in Tampa. General and administrative expenses increased $3.9 million during the period as our new divisions, Denver and Tampa, experienced growth in their operations, and, to a lesser extent, as a result of continued operational growth in Orlando and Phoenix and an increase in corporate staffing. Total sales and marketing and general and administrative expenses, as a percentage of total revenues decreased to 10.9% from 11.5%. Earnings from unconsolidated entities, which represent earnings primarily from our mortgage and title joint ventures in which we have a 49% ownership interest, increased $0.4 million as a result of increased home closing volume, as compared to the prior period.

      As compared to the six months ended November 30, 2004, net income in the six months ended November 30, 2005, increased 3.3% or $0.9 million. The increase resulted primarily from the increase in home closings and an increase in average sales price per home of 11.5% from approximately $234,000 per home sale in the prior period to $261,000 in the current period. Total sales and marketing expenses increased $1.4 million due primarily to start-up expenses in Denver and Tampa. General and administrative expenses increased $5.8 million during the period as our new divisions, Denver and Tampa, experienced growth in their operations, and, to a lesser extent, as a result of continued operational growth in Orlando and Phoenix and an increase in corporate staffing. Total sales and marketing and general and administrative expenses, as a percentage of total revenues increased to 12.4% from 10.8%. Earnings from unconsolidated entities, which represent earnings primarily from our mortgage and title joint ventures in which we have a 49% ownership interest, increased $0.7 million.

      Net New Home Orders and Backlog. Net new home orders increased by 44.0% during the three months ended November 30, 2005, compared to the same period in the prior year. Net new home orders increased in every market served by us due to the growth in the number of our active communities and continued product and geographic expansion.

      Net new home orders in the Atlanta operation for the three months ended November 30, 2005 increased 34.8% reflecting the increase in active communities from seven to 10, the successful opening of an additional stacked flat condominium community and our continued product expansion with the opening of our first active adult community. Net new home orders in Dallas increased 43.3% during the second quarter of fiscal year 2006, reflecting the successful expansion of our product mix in Dallas with the successful opening of three townhome projects during the six months ended November 30, 2005. Net new home orders for the three months ended November 30, 2005 in Houston increased 24.1% due to the increase in the number of our active communities in the Houston market from 11 at November 30, 2004 to 12 at November 30, 2005. Net new home orders in Orlando continued to be strong during the second quarter of fiscal year 2006, increasing 86.0%, due to the favorable market conditions. Net new home orders in Phoenix increased 32.2% in the three months ended November 30, 2005, compared to the three months ended November 30, 2004, due primarily to an increase in the number of our active communities. Additionally, we had eight net new home orders in our Tampa operation during the three months ended November 30, 2005, our first orders in this new operation.

      For the six months ended November 30, 2005, net new home orders increased 39.5% reflecting the strong demand for new homes in our markets, an increase in the number of active communities and the opening for sale in our Tampa operation.

      Backlog as of November 30, 2005 reached the highest level in our history, at 1,649 orders, an increase of 66.9% as compared to November 30, 2004 and an increase of 23.6% as compared to May 31, 2005. Our backlog of 1,649 orders represents approximately $492.9 million in sales value and an increase in the sales value backlog of $229.6 million or 87.2% at the end of the current period as compared to November 30, 2004, and an increase of approximately $122.9 million or 33.2% compared to May 31, 2005. We expect, assuming no significant change in market conditions or mortgage interest rates, approximately 80.0%-85.0% of the number of units in our backlog will close under existing sales contracts during the remaining months of fiscal year 2006. Backlog represents the number and value of new sales orders net of any cancellations that may have occurred during the reporting period. Historically, we have experienced a cancellation rate between 15%-20% of the gross new orders recorded in any reporting period.

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Fiscal year 2005 compared to fiscal year 2004

      Revenues. Revenues increased 21.0% or $86.8 million for fiscal year 2005 as compared to fiscal year 2004. We experienced an 11.6% increase in homes closed to 1,894 from 1,697 and an increase in our average sales price per home closed of 9.9% to $244,000 as compared to $222,000 in fiscal year 2004. We increased our revenues from land sales to $37.0 million for fiscal year 2005 as compared to $34.6 million in the prior year, primarily as a result of land sales in Orlando and Denver.

      Homes closed increased significantly in Dallas and Phoenix in fiscal year 2005 as compared to the prior year as a result of increased active communities in both cities. In addition, the Phoenix division’s backlog at the end of fiscal year 2004 was significant which assisted with its closings growth during the year.

      Gross Margins. Home gross margins were 21.0% for fiscal year 2005 compared to 20.5% in the prior year. The increase in our home gross margins was due to the increased pricing power we experienced as a result of the continued strong demand for our homes in Dallas, Orlando and Phoenix. Our diversification into townhomes in Atlanta and Orlando also favorably impacted our margins. Land gross margins improved to 53.6% for fiscal year 2005 compared to 32.7% in the prior year primarily due to higher prices of undeveloped land in Orlando.

      Sales and Marketing Expenses. Sales and marketing expenses, which include sales commissions, advertising, model expenses and other costs, totaled $26.5 million for fiscal year 2005 or 5.3% of revenues, compared to $23.8 million in fiscal year 2004 or 5.8% of revenues. The increase of $2.7 million or 11.3%, was primarily due to the larger volume of homes available for sale and closed during the current fiscal year. The increase reflects the 11.6% increase in homes closed, the related increase in sales commissions, and the increase in marketing costs experienced by the Orlando and Phoenix divisions as their operations continue to grow and establish brand recognition in their respective markets.

      General and Administrative Expenses. General and administrative expenses totaled $28.9 million in fiscal year 2005 or 5.8% of revenues, compared to $20.2 million in the prior year or 4.9% of revenues. The increase of $8.7 million resulted from continued significant growth in Orlando and Phoenix, the investment in the start-up divisional operations in Tampa and Denver, the commensurate increases in our corporate staff to support these operations and, to a lesser extent, increased compensation costs attributable to the increase in net earnings as all bonuses earned by corporate and division management are partially based on our profitability.

      Net Income. Net income increased $17.0 million or 40.1% in the year ended May 31, 2005 as compared to the year ended May 31, 2004. The increase resulted primarily from the increase in homes closed, an increase in average sales price per home closed of 9.9% and an increase in land sales in Orlando and Denver over the prior year. Total sales and marketing expenses increased $2.7 million due primarily to the increase in homes closed and the related commissions attributable to those homes. General and administrative expenses also increased $8.7 million during the fiscal year due to significant growth in our Orlando and Phoenix operations, the establishment of two new operations in Denver and Tampa, respectively, and, to a lesser extent, to an increase in our corporate staffing. As a result, total sales and marketing and general and administrative expenses increased as a percentage of total revenues by 0.4%.

      Net New Home Orders and Backlog. Net new home orders increased 4.4% or 95 orders, during the year ended May 31, 2005 as compared to the prior fiscal year. The increase was the result of an increase in our active communities and the number of homes available for sale primarily in Houston, Orlando and Dallas offset by a decline in net new home orders in Atlanta and Phoenix.

      Net new home orders in Atlanta declined in fiscal year 2005 to 503 as compared to 615 in the prior fiscal year, representing a decrease of 112 orders, or 18.2%. The decrease reflects the decline in active communities from nine to eight as we experienced significant delays in land development due to weather and governmental permitting issues.

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      Net new home orders in Orlando increased to 450 in the fiscal year ended May 31, 2005 compared to 246 in the fiscal year ended May 31, 2004. This increase of 204 orders, or 82.9%, reflects the increase in active communities in the Orlando market from three at May 31, 2004 to five at May 31, 2005 despite the delayed opening of several new communities due to significant weather related delays as a result of the severe hurricane season during the fall of 2004.

      Net new home orders in Phoenix declined to 349 in the fiscal year ended May 31, 2005 as compared to 432 net new home orders in the prior year representing 83 units, or 19.2%. This reduction was primarily due to limits that we placed on the number of new home orders that we accepted during the fiscal year due to our significant backlog and our desire to focus our production capacity on completing the homes in our backlog. In addition, land development in several new communities was delayed due in part to the severe wet weather experienced in the winter and to the strong demand for subcontractors.

      Backlog as of May 31, 2005 was 1,334, homes representing a sales value of $369.9 million and an increase in the sales value of backlog of $129.6 million or 53.9% at the end of the fiscal year as compared to the sales value of backlog of $240.3 million at the end of fiscal year 2004. We expect, assuming no significant change in market conditions or mortgage interest rates, that approximately 80.0%-85.0% of the number of units in our backlog will close under existing sales contracts during the first nine months of fiscal year 2006 which is consistent with our historical experience. Backlog represents the number and value of new sales orders net of any cancellations that may have occurred during the reporting period. Historically, we have experienced a cancellation rate between 15%-20% of the gross new orders recorded in any reporting period.

Fiscal year 2004 compared to fiscal year 2003

      Revenues. Fiscal year 2004 revenues increased by $105.2 million or 34.2% as compared to fiscal year 2003. This increase was attributable to a 36.7% growth in homes closed to 1,697 from 1,241 in fiscal year 2003. Land sales increased $14.9 million, or 75.6%, from $19.7 million to $34.6 million primarily as a result of an increase in land activity in Denver and Orlando. These increases were partially offset by a decline in our average sales price per home closed to $222,000, which represents a $9,000 or 3.9% decrease.

      Our homes closed were significantly higher in fiscal year 2004 compared to 2003. The growth in homes closed was attributable to the sales achieved in our Atlanta townhome communities. These townhomes sold well ahead of expectations. Orlando and Phoenix also produced 308 additional homes closed during fiscal year 2004, which represents a significant increase over fiscal year 2003. We closed fewer homes in fiscal year 2004 in Dallas and Houston due in part to the difficult economy in Texas and the existence of fewer active communities during fiscal year 2004 as compared to the prior year.

      The average sales price of our homes closed declined by $9,000 or 3.9% to $222,000 in fiscal year 2004 compared to $231,000 in fiscal year 2003. We experienced the most significant decline in average sales price of $53,000 in Orlando as we opened our second active community with a lower-end townhome product that produced significant results during the fiscal year. The Atlanta operation experienced the second largest decline of $47,000 per home closed. The Atlanta operation has purposely diversified its product mix to include a lower priced townhome product to appeal to a wider segment of the public.

      Gross Margins. Home gross margins were 20.5% for the fiscal year ended May 31, 2004, compared to 17.3% in fiscal year 2003. The increase in our home gross margins was due primarily to strong demand for our homes and increases in selling prices in select communities in Dallas, Orlando and Phoenix. Home gross margins were also positively impacted by leveraging our national purchasing power to minimize the impact of material cost increases. Land gross margins were 32.7% for the fiscal year ended May 31, 2004 compared to 19.2% in the prior year due to higher prices for undeveloped land in Orlando and Denver.

      Sales and Marketing Expenses. Sales and marketing expenses totaled $23.8 million during fiscal year 2004, compared to $18.7 million in fiscal year 2003. The increase of $5.1 million or 27.3% was primarily due to an increase in homes closed and the related increase in sales commissions. Another factor was the

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increase in marketing costs experienced by the new Orlando and Phoenix divisions as their operations continue to grow. Sales and marketing expenses declined as a percentage of total revenues to 5.8% in fiscal year 2004 as compared to 6.1% in fiscal year 2003.

      General and Administrative Expenses. General and administrative expenses totaled $20.2 million in fiscal year 2004, compared to $16.6 million in fiscal year 2003 which represents a $3.6 million or 21.7% increase. The increase in fiscal year 2004 is primarily due to the increased administrative costs of growing the two newest divisions in Orlando and Phoenix, the commensurate increases in our corporate staff to support these operations, and, to a lesser extent, increased compensation costs attributable to the increase in net earnings as all bonuses earned by corporate and division management are partially based on our profitability. General and administrative expenses declined as a percentage of total revenue for fiscal year 2004 to 4.9% as compared to 5.4% for fiscal year 2003.

      Net Income. Net income increased 157.2% or $25.9 million during fiscal year 2004 as compared to fiscal year 2003. The increase resulted primarily from the growth in home sales revenue and a 3.2% improvement in home gross margins. In addition, land sales, primarily in Denver and Orlando, contributed significantly to our profitability. However, total sales and marketing expenses increased $5.1 million or 27.3% due primarily to the increased homes closed and the related commissions and closing costs attributable to those homes. General and administrative expenses also increased $3.6 million or 21.7% during the year as our new divisions, Orlando and Phoenix, experienced significant growth in their operations, and, to a lesser extent, an increase in our corporate staffing.

      Net New Home Orders and Backlog. Net new home orders improved significantly during fiscal year 2004 as compared to fiscal year 2003 for a number of reasons despite the fact that we only had one additional active community during fiscal year 2004. The Atlanta, Orlando, and Phoenix divisions experienced strong sales due to the strong housing market in each city and an increase in net new home orders per active community as compared to fiscal year 2003.

      Net new home orders in Atlanta increased significantly in fiscal year 2004 to 615 from 283 in fiscal year 2003, which represents an increase of 332 orders or 117.3%, despite a reduction in active communities to nine in fiscal year 2004 from 11 in fiscal year 2003. Sales increased in many of the operation’s communities; however, the sales increase was the most significant in its townhome communities due to their design and location.

      Net new home orders in Orlando also increased significantly to 246 in fiscal year 2004 compared to 123 in fiscal year 2003, which represents an increase of 123 orders or 100.0%. We experienced a full year of orders in our third active community — a townhome community introduced toward the end of fiscal year 2003 that experienced very strong net new home orders during fiscal year 2004.

      The Phoenix division experienced an increase in demand for its homes as it continued to increase its active community count by four to six active communities by the end of fiscal year 2004. The division began to raise prices toward the end of fiscal year 2004 in an effort to slow the exceptional demand for its homes to ensure the home production process could keep pace with the new home order volume.

      As a result of the significant increase in net new home orders, backlog as of May 31, 2004 reached 998 homes representing a value of $240.3 million. This also represented an increase in the sales value of backlog of $117.7 million or 96.0% at the end of fiscal year 2004 as compared to the prior year.

LIQUIDITY AND CAPITAL RESOURCES

      Our principal uses of cash are land purchases, lot development and home construction. We fund our operations with cash flows from operating activities and/or borrowings under our senior unsecured credit facility. As we utilize our capital resources and liquidity to fund the growth of our operations, we focus on maintaining conservative balance sheet leverage ratios. We believe that we will be able to continue to fund our operations and our future cash needs (including debt maturities) through a combination of cash flows from operating activities and our existing senior unsecured credit facility.

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      As of November 30, 2005, our ratio of total debt to total capitalization was 52.5%, compared to 46.0% as of May 31, 2005. Total debt to capitalization increased as a result of growth in homebuilding activities resulting in the incurrence of debt to fund the growth during the six months ended November 30, 2005. As of May 31, 2004, our ratio of total debt to total capitalization was 46.3%. Total debt to total capitalization consists of notes payable divided by total capitalization (notes payable plus members’ equity).

      During the six months ended November 30, 2005, we used approximately $46.4 million in cash from operating activities as a result of a $91.8 million increase in spending on inventory supply for future growth, which was partially offset by net income and decreases in accounts receivable and increases in customer deposits and accounts payable.

      During the six months ended November 30, 2004, we generated approximately $20.9 million in cash from operating activities, which was due primarily to net income of $29.9 million which was partially offset by a $20.0 million investment in inventory supply for future growth.

      During the fiscal year ended May 31, 2005, cash generated from operating activities was $31.1 million. We increased our investment in inventory supply for future growth by $50.3 million during the fiscal year ended May 31, 2005, which was more than offset by net income and increases in accounts payable and customer deposits.

      Investing Cash Flow. Cash used in investing activities totaled $5.5 million for the six months ended November 30, 2005 as compared to $4.2 million for the six months ended November 30, 2004. In both periods cash used in investing activities was primarily spent on investments in unconsolidated joint ventures in order to support our land acquisition strategy and on property and equipment to support our home sales efforts with model and sales office furnishings.

      For the fiscal year ended May 31, 2005, cash used in investing activities totaled $17.0 million. We increased our investment in unconsolidated entities by $10.4 million in order to support our land acquisition strategy. In addition, investments in real estate not owned increased by $0.4 million and additions to property and equipment increased by $6.2 million in order to support our home sales efforts with model and sales office furnishings.

      Financing Cash Flow. Net cash provided by financing activities totaled $51.8 million in the six months ended November 30, 2005. In September 2005, we issued $125 million aggregate principal amount of 9.5% Senior Subordinated Notes due 2015 in a private placement pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended. Interest on the 9.5% Senior Subordinated Notes due 2015 is payable semiannually. The net proceeds of $121.3 million were used to repay amounts outstanding under our senior unsecured credit facility and to repay certain related party debt. Additionally, we incurred borrowings under our senior unsecured credit facility of $83.0 million and made a distribution of $5.3 million to our members for their payment of federal and state income taxes and as general distributions of income.

      During the six months ended November 30, 2004, cash used by financing activities totaled $13.8 million, which included an increase in debt outstanding under our senior unsecured credit facility of $49.8 million, repayments of amounts outstanding under our senior unsecured credit facility of $39.3 million, a reduction in related party debt of $1.4 million and distributions of $22.9 million to our members for their payment of federal and state income taxes and as general distributions of income.

      During fiscal year 2005, cash used in financing activities totaled $14.6 million, which included an increase in our debt outstanding under our senior unsecured credit facility of $12.2 million and an increase in related party notes of $10.3 million. Funds from our senior unsecured credit facility and the related party note were used to finance an increase in our inventory. These increases were offset by reductions in secured notes of $1.5 million and distributions totaling $33.7 million to our members for the payment of federal and state income taxes and as general distributions of our income.

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      Senior Unsecured Credit Facility. In January 2005, we entered into a senior unsecured credit facility. The senior unsecured credit facility provides for up to $225.0 million of unsecured borrowings, subject to a borrowing base, and includes an accordion feature by which we may request, subject to certain conditions, an increase of the senior unsecured credit facility up to a maximum of $300.0 million. The senior unsecured credit facility provides for the issuance of up to $25.0 million in letters of credit. The maturity date of the senior unsecured credit facility is January 19, 2009. However, once during each fiscal year (i.e., June 1-May 31) we may request that the lenders extend the maturity date by an additional year. Our obligations under the senior unsecured credit facility are guaranteed by certain of our subsidiaries and all the holders of our membership interests. The senior unsecured credit facility contains a number of customary financial and operating covenants, including covenants requiring us to maintain a minimum consolidated tangible net worth; requiring us to maintain a ratio of consolidated/total liabilities to adjusted net worth not in excess of 2.25x; requiring us to maintain an interest coverage ratio of at least 2.5x; limiting the principal amount of our secured debt to $25 million at any given time; limiting the net book value of our unimproved entitled land, lots under development and finished lots to 150.0% of our adjusted tangible net worth; limiting the aggregate distributions by us and our subsidiaries in any fiscal year; restricting our ability to incur additional indebtedness; and restricting our ability to engage in mergers and consolidations and our ability to sell all or substantially all of our assets. As of November 30, 2005, we were in compliance with the covenants under the senior unsecured credit facility. On December 16, 2005, we entered into an amended and restated senior unsecured credit facility which contains certain terms that are less restrictive than the terms described above. For a description of the amended and restated unsecured credit facility, see the discussion under “Description of other indebtedness.”

      Because we have been in compliance with the covenants in our senior unsecured credit facility, these covenants have not had a material impact on our operations, financial condition and results of operations. However, in the future our ability to secure financing for our operations or otherwise pursue our business plan could be limited by these covenants, and if we are unable to obtain financing for our operations or otherwise pursuing our business plan, our growth may be impaired and our revenues may decline.

      Borrowings under the senior unsecured credit facility are limited by the availability of sufficient real estate borrowing base, which is determined regularly throughout the life of the senior unsecured credit facility. At November 30, 2005, we had $46.8 million in outstanding borrowings, and $178.2 million in available borrowings under the senior unsecured credit facility.

      9.5% Senior Subordinated Notes. In September 2005, we issued $125 million aggregate principal amount of 9.5% Senior Subordinated Notes due 2015 in a private placement pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended. Interest on the 9.5% Senior Subordinated Notes due 2015 is payable semiannually. The net proceeds were used to repay amounts outstanding under our senior unsecured credit facility and to repay certain related party debt.

      The indenture governing the 9.5% Senior Subordinated Notes due 2015 contains covenants that limit our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness; pay dividends or make other distributions; make investments; sell assets; incur liens; enter into agreements restricting our subsidiaries’ ability to pay dividends; enter into transactions with affiliates; and consolidate, merge or sell all or substantially all of our assets. Unlike the senior unsecured credit facility, the financial covenants in the indenture governing the 9.5% Senior Subordinated Notes due 2015 primarily limit our ability to incur additional debt, make distributions or engage in other actions rather than require us to maintain certain financial ratios or levels. Consequently, the covenants in the indenture have not had a significant impact on our operations, financial condition and results of operations. However, in the future our ability to secure financing for our operations could be limited by these covenants, and if we are limited in our ability to attain financing, our operations, financial condition and results of operations could be adversely affected.

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OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE AND CONTRACTUAL COMMITMENTS

      Our primary contractual cash obligations for our operations are payments under our debt agreements, lease payments under operating leases and purchase obligations with specific performance requirements under lot option purchase agreements. These lot option purchase agreements may require us to purchase land contingent upon the land seller meeting certain obligations. We expect to fund our contractual obligations in the ordinary course of business through our operating cash flows and senior unsecured credit facility. As of November 30, 2005, our contractual obligations related to our debt agreements included the 9.5% Senior Subordinated Notes described above. As of November 30, 2005, our contractual obligations related to lease payments under operating leases and purchase obligations with specific performance requirements under lot option purchase agreements have not changed materially from those reported in the footnotes to our audited consolidated financial statements for the fiscal year ended May 31, 2005.

      Our future cash requirements for contractual obligations as of November 30, 2005 are presented below:

	Payments Due by Period
	Less Than		2-3		4-5		More Than
	1 Year		Years		Years		5 Years		Total
	(In thousands)
Senior unsecured credit facility(1)	$	—	$	—	$	46,839	$	—	$	46,839
9.5% Senior Subordinated Notes due 2015		—		—		—		125,000		125,000
Interest commitments under Senior Subordinated Notes		11,875		23,750		23,750		59,375		118,750
Operating leases		752		2,529		471		—		3,752
Specific performance lot option purchase agreements		4,204		2,918		—		—		7,122
	$	16,831	$	29,197	$	71,060	$	184,370	$	301,463

(1)  Excludes interest obligations under the senior unsecured credit facility as these amounts are not currently determinable.

      In the ordinary course of our business, we enter into land and lot option purchase contracts with unaffiliated entities in order to procure land or lots for the construction of homes. Certain of such land and lot option purchase contracts contain specific performance provisions which require us to purchase the land or lots subject to the contract upon satisfaction of certain conditions by us and the sellers. Under option purchase contracts without specific performance provisions, we will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms.

      Under option contracts without specific performance provisions, our liability is generally limited to the forfeiture of deposits, any letters of credit posted and any other nonrefundable amounts specified in the contracts. Amounts subject to forfeiture under option contracts without specific performance obligations, at November 30, 2005, aggregated approximately $4.6 million. Amounts subject to forfeiture under option contracts with specific performance obligations at November 30, 2005, aggregated approximately $0.2 million. Below is a summary of amounts, net of cash deposits, committed under all option contracts at November 30, 2005 (in thousands):

	Aggregate
	Exercise Price
	of Options
Options with specific performance	$	7,122
Options without specific performance		102,747
	$	109,869

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      We expect to exercise all of our option contracts with specific performance provisions and, subject to market conditions, substantially all of our option contracts without specific performance provisions. Various factors, some which are beyond our control, such as market conditions, weather conditions and the timing of the completion of development activities, can have a significant impact on the timing of option exercises. Under their current terms, and assuming no significant changes in market conditions or other factors, we expect to exercise our land options as follows (in thousands):

Fiscal Year Ending May 31,
2006	$	58,570
2007		32,723
thereafter		23,379
	$	114,672

      Under the terms of the option purchase contracts, many of our option deposits are non-refundable. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended by FIN 46-R issued in December 2003 (“FIN 46R”), certain non-refundable deposits are deemed to create a variable interest in a variable interest entity under the requirements of FIN 46R. As such, certain of our option purchase contracts result in the acquisition of a variable interest in the entity holding the land parcel under option.

      In applying the provisions of FIN 46R, we evaluated those land and lot option purchase contracts with variable interest entities to determine whether we are the primary beneficiary based upon analysis of the variability of the expected gains and losses of the entity. Based on this evaluation, if we are the primary beneficiary of an entity with which we have entered into a land or lot option purchase contract, the variable interest entity is consolidated.

      The consolidation of these variable interest entities added $14.4 million, $12.1 million and $1.9 million in real estate not owned, liabilities related to real estate not owned and minority interests in real estate not owned, respectively, to our balance sheet at November 30, 2005 and added $14.9 million, $12.6 million and $2.0 million in real estate not owned, liabilities related to real estate not owned and minority interests in real estate not owned, respectively, to our balance sheet at May 31, 2005.

      We participate in a number of land development entities with equity investments of 50% or less and do not have a controlling interest. These land development entities are typically entered into with developers, other homebuilders and related parties to develop finished lots for sale to the members of the entities and other third parties. We account for our interest in these entities under the equity method. Our share of profits from these entities are deferred and treated as a reduction of the cost basis of land purchased from the entity. The land development entities with unrelated parties typically obtain secured acquisition and development financing. In some instances, the entity partners have provided varying levels of guarantees of debt of the unconsolidated entities. These repayment guarantees require us to repay our share of the debt of unconsolidated entities in the event the entity defaults on its obligations under the borrowings. We had repayment guarantees of $4.6 million and $4.2 million at November 30, 2005 and May 31, 2005, respectively.

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LAND AND LOT POSITION AND HOMES IN INVENTORY

      At November 30, 2005, we controlled 7,697 lots, 39.0% of which were lots under option or similar contracts. The following is a summary of our land and lot positions for use in our homebuilding operations:

	As of November 30,			As of November 30,
	2005			2004
Finished lots owned		656			783
Lots under development owned		3,624			2,582
Raw land owned		417			1,505
Total lots owned		4,697			4,870
Lots controlled under lot option and similar contracts		3,000			2,097
Total land/lots controlled		7,697			6,967
Percentage controlled under option		39.0	%		30.1	%

      In addition to the land purchased specifically for our homebuilding operations, we have in the past pursued land development opportunities in which we acquired and developed lots for sale to third party builders in addition to the use in our own homebuilding operations. We still hold some of this land for our use and for sale to third party builders in Denver and Orlando, among other markets. At November 30, 2005, we owned two finished lots and 280 lots of raw land and land under development land in Denver that are not anticipated to be used in our homebuilding operations. At November 30, 2004, we owned 593 lots of raw land in Orlando, and four finished lots and 315 lots of raw land and land under development in Denver which were not anticipated to be used in our homebuilding operations.

      At November 30, 2005, we had a total of 112 model homes, 143 unsold homes under construction and 30 completed but unsold homes. At November 30, 2004, we had a total of 96 model homes, 78 unsold homes under construction and 15 completed but unsold homes.

INFLATION

      We and the homebuilding industry in general may be adversely affected during periods of inflation, primarily because of higher land, financing, labor and material construction costs. In addition, higher mortgage interest rates can significantly affect the affordability of permanent mortgage financing to prospective homebuyers. We attempt to pass through to our customers any increases in our costs through increased sales prices and, to date, inflation has not had a material adverse effect on our results of operations. However, there is no assurance that inflation will not have a material adverse impact on our future results of operations.

SEASONALITY

      Historically, we have received fewer net new home orders in November and December, which fall in our second and third fiscal quarters, respectively, as a result of the colder weather during those months. We expect this seasonal trend to continue, though it may vary if our operations expand to new markets.

CRITICAL ACCOUNTING POLICIES

      General. A more comprehensive enumeration of our significant accounting policies is presented in the notes to the accompanying financial statements as of and for the years ended May 31, 2005, 2004 and 2003. Each of our accounting policies has been chosen based upon current authoritative literature that collectively comprises generally accepted accounting principles (“GAAP”) for public companies operating in the United States of America. In instances where alternative methods of accounting are permissible under GAAP, we have chosen the method that most appropriately reflects the nature of our business, the results of our operations and our financial condition, and have consistently applied those methods over each of the periods presented in the financial statements.

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      Some of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters. Although our accounting policies are in compliance with GAAP, a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. Listed below are those policies that we believe are critical and require the use of complex judgment in their application.

      Basis of Presentation. Our financial statements include the accounts of Ashton Woods USA L.L.C. and all of its wholly-owned, majority-owned and controlled subsidiaries. All significant intercompany accounts, transactions and balances have been eliminated in consolidation. We have also consolidated certain variable interest entities from which we are purchasing lots under option purchase contracts, under the requirements of FASB Interpretation No. 46R issued by the Financial Accounting Standards Board (“FASB”).

      Revenue Recognition. We recognize homebuilding revenues when a home closes and title to and possession of the property are transferred to the buyer. Substantially all of our revenues are received in cash within a day or two of closing. We include amounts in transit from title companies at the end of each reporting period in accounts receivable. When we execute sales contracts with our homebuyers, or when we require advance payment from homebuyers for custom changes, upgrades or options related to their homes, we record the cash deposits received as liabilities until the homes are closed or the contracts are canceled. We either retain or refund to the homebuyer deposits on canceled sales contracts, depending upon the applicable provisions of the contract.

      Inventories and Cost of Sales. Finished inventories and land held for sale are stated at the lower of accumulated cost or fair value less cost to sell. Homebuilding projects and land held for development and construction are stated at cost unless facts and circumstances indicate that such cost would not be recovered from the undiscounted cash flows generated by future disposition, after considering estimated cash flows associated with all future expenditures to develop the assets, including interest payments that will be capitalized as part of the cost of the asset. In this instance, such inventories are written down to estimated fair value that is determined based on management’s estimate of future revenues and costs. Due to uncertainties in the estimation process, it is possible that actual results could differ. We continue to evaluate the carrying value of our inventory, believe that the existing estimation process fairly presents our inventory balances and do not anticipate the process to materially change in the future.

      In addition to the costs of direct land acquisition, land development and home construction, inventory costs include interest, real estate taxes and indirect overhead costs incurred during development and home construction. We use the specific identification method for the purpose of accumulating home construction costs. Cost of sales for homes closed includes the specific construction costs of each home and all applicable land acquisition, land development and related costs (both incurred and estimated to be incurred) based upon the total number of homes expected to be closed in each project. Any changes to the estimated total development costs subsequent to the initial home closings in a project are generally allocated on a pro-rata basis to the remaining homes in the project.

      When a home is closed, we generally have not yet paid and recorded all incurred costs necessary to complete the home. Each month we record as a liability and as a charge to cost of sales the amount we estimate will ultimately be paid related to completed homes that have been closed as of the end of that month. We compare our home construction budgets to actual recorded costs to estimate the additional costs remaining to be paid on each closed home. We monitor the accuracy of each month’s accrual by comparing actual costs incurred on closed homes in subsequent months to the amount we accrued. Although actual costs to be paid on closed homes in the future could differ from our current estimate, our method has historically produced consistently accurate estimates of actual costs to complete closed homes.

      Each quarter, we review all components of our inventory for the purpose of determining whether recorded costs and costs required to complete each home or project are recoverable. If our review indicates that an impairment loss is required under the SFAS No. 144 guidelines, we estimate and record such loss to cost of sales in that quarter. To date, such impairment losses have been insignificant in the aggregate.

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Impairment assessments under SFAS No. 144 involves management estimates of future revenues and costs and, due to uncertainties in the estimation process, actual results could differ from such estimates.

      Consolidation of Variable Interest Entities. In January 2003, FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). In December 2003, FIN 46 was replaced by FIN 46R. FIN 46R requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46R, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46R applied immediately to variable interest entities created after December 31, 2003, and with respect to variable interest entities created before January 1, 2004, FIN 46R was not required to be applied until the first annual period beginning after December 15, 2004.

      In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Under such option purchase contracts, we will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of our option deposits are non-refundable. Certain non-refundable deposits are deemed to create a variable interest in a variable interest entity under the requirements of FIN 46R. As such, certain of our option purchase contracts result in the acquisition of a variable interest in the entity holding the land parcel under option.

      In applying the provisions of FIN 46R, we evaluate those land and lot option purchase contracts with variable interest entities to determine whether we are the primary beneficiary based upon analysis of the variability of the expected gains and losses of the entity. Based on this evaluation, if we are the primary beneficiary of an entity with which we have entered into a land or lot option purchase contract, the variable interest entity is consolidated.

      Since we own no equity interest in any of the unaffiliated variable interest entities that we must consolidate pursuant to FIN 46R, we generally have little or no control or influence over the operations of these entities or their owners.

      When our requests for financial information are denied by the land sellers, certain estimates about the assets and liabilities of such entities are required. In most cases, the fair value of the assets of the consolidated entities have been estimated to be the remaining contractual purchase price of the land or lots we are purchasing. In these cases, it is estimated that the entities have no significant debt obligations and the only asset recorded is the land or lots we have the option to buy with a related offset to minority interest for the assumed third party investment in the variable interest entity. Creditors, if any, of these variable interest entities have no recourse against us.

      Warranty Liabilities. We establish warranty liabilities by charging cost of sales and crediting a warranty liability for each home closed. Unlike our two-and ten-year warranties which we insure through a third-party insurance company, we self-insure for our obligations under our one-year warranties. Consequently, we estimate the amounts charged to be adequate to cover expected warranty-related costs, including materials and labor required under the one-year warranty obligation period. The one-year warranty is comprehensive for all parts and labor. Our warranty liabilities are based upon our historical warranty cost experience in each market in which we operate and are adjusted as appropriate to reflect qualitative risks associated with the type of homes we build and the geographic areas in which we build them. Actual future warranty costs could differ significantly from our currently estimated amounts.

      Insurance Claim Costs. We have, and require the majority of our subcontractors to have, general liability and workers compensation insurance. These insurance policies protect us against a portion of our risk of loss from claims, subject to certain deductibles and other coverage limits. We accrue an estimated liability for costs to cover our deductible amounts under those policies and for any estimated costs of claims and lawsuits in excess of our coverage limits or not covered by our policies, based on an analysis of

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our historical claims, which includes an estimate of construction defect claims incurred but not yet reported. Projection of losses related to these liabilities is subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices, and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liabilities, actual future costs could differ significantly from our currently estimated amounts.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are exposed to a number of market risks in the ordinary course of business. Our primary market risk exposure for financial instruments relates to fluctuations in interest rates. We do not believe our exposure in this area is material to cash flows or earnings. From time to time, we have entered into interest rate swap agreements to manage interest costs and hedge against risks associated with fluctuating interest rates with respect to floating rate debt. We do not enter into or hold derivatives for trading or speculative purposes. As of November 30, 2005, we had a total of $46.8 million of floating rate debt outstanding under our senior unsecured credit facility, and borrowings under that facility generally bear interest based on an applicable margin plus LIBOR or an alternate base rate. As of November 30, 2005, we were not a party to any interest rate swap agreements.

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Business

       We are one of the largest private homebuilders in the United States based on number of home closings and revenues. We design, build and market high-quality single-family detached homes, townhomes and stacked-flat condominiums under the Ashton Woods Homes brand name. We operate in Atlanta, Dallas, Houston, Orlando and Phoenix and are establishing homebuilding operations in Tampa and Denver. These cities represent seven of the 20 largest new residential housing markets in the United States according to the U.S. Census Bureau. We have been in operation for over 15 years and serve a broad customer base including first-time buyers and first-and second-time move-up buyers. We focus on achieving the highest standards in design, quality and customer satisfaction. We have received numerous awards, including the 2005 and 2004 J.D. Power Award for Highest in Customer Satisfaction with New Homebuilders in Atlanta, and we were ranked in the top 10% of all homebuilders nationally in customer satisfaction in 2005 and 2004 by an independent nationally recognized survey company not affiliated with us.

BUSINESS STRATEGY

      Provide Our Customers with Superior Value, Quality and Customer Service. Based on the awards we have received, we believe we are recognized for building homes that offer superior design, excellent quality and outstanding value. We believe that our rigorous focus on value, quality and customer service provides us with an important competitive advantage and enables us to increase our sales and enhance our profitability. We perform comprehensive research of homebuyer preferences and utilize the services of award-winning outside architectural firms to provide our customers with attractive, well designed homes, consistent with the tastes and trends in each of our markets. We offer our homebuyers the opportunity to customize their new homes in our state-of-the-art Ashton Woods Homes Design Centers in Atlanta, Dallas, Houston and Orlando, or in our fully decorated model homes in each of our communities. We instill in all our employees the importance of high quality and superior customer service through extensive in-house training, as well as through a compensation structure directly tied to our J.D. Power customer satisfaction results.

      Our reputation for outstanding quality, superior designs and excellent customer service is evidenced by the numerous awards and accolades we have received over the past several years. These awards include:

•  the 2005 Best Model Park in Houston (from the Greater Houston Builders Association);

•  the 2004 Small Volume Builder of the Year in Phoenix (from the Homebuilders Association of Central Arizona);

•  the 2004 Best Interior Merchandising for Homes from $226,000 to $350,000 in Phoenix (from the Homebuilders Association of Central Arizona);

•  the 2004 Best Detached Floor Plan Design for Homes from $226,000 to $350,000 in Phoenix (from the Homebuilders Association of Central Arizona);

•  first place in 2004 for Production Detached Homes from $296,000 to $307,000 in Orlando (from the Homebuilders Association of Metro Orlando);

•  first place in 2003 for Production Attached Homes from $152,000 to $175,000 in Orlando (from the Homebuilders Association of Metro Orlando); and

•  the 2003 Grand Award for Attached Homes in Orlando (from the Homebuilders Association of Metro Orlando).

      The entities sponsoring these awards are trade organizations. Although we, along with other homebuilders, are members in the organizations sponsoring these awards, we do not have an ownership interest in and are not otherwise affiliated with the award sponsors. Additionally, we were the only homebuilder to receive a five-star rating for home design in Atlanta from J.D. Power, where we were also awarded Highest in Customer Satisfaction with New Homebuilders by J.D. Power in 2005 and 2004. Our

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commitment to customer service has been further recognized in a nationwide survey, where we ranked in the top 10% of homebuilders nationally in 2005 and 2004. We intend to continue to increase sales and profitability by continuing to provide superior values, quality and customer service.

      Leverage Our Product, Customer and Geographic Diversification. We offer a broad portfolio of products including single-family detached homes, townhomes and stacked-flat condominiums, designed for and marketed to first-time buyers and first- and second-time move-up buyers. We operate in seven geographically diverse markets. Our product, customer and geographic diversification enables us to balance dynamic market conditions, enhance financial stability and reduce our exposure to any specific market or homebuyer segment. Single-family detached homes, townhomes stacked-flat condominiums and active adult communities accounted for 19%, 14%, 66% and 1%, respectively, of our net new home orders for the quarter ended November 30, 2005 and 70%, 20% and 10%, respectively, of our net new home orders for the fiscal year ended May 31, 2005 and. We capitalize on our broad product portfolio by targeting a diversified customer base. We estimate that first-time buyers, and first- and second-time move-up buyers accounted for 39%, 20% and 41%, respectively, of our net new home orders during the six months ended November 30, 2005 and 40%, 34% and 26%, respectively, of our net new home orders during the fiscal year ended May 31, 2005.

      We believe we are able to successfully leverage our market presence in our existing markets and enhance our product offerings. We believe we are able to appeal to a broader group of homebuyers and enhance our growth without a significant increase of overhead costs. This strategy has proven successful as we continue to introduce new product lines in each of our markets including stacked-flat condominiums in Atlanta and Orlando, a townhome product line in Dallas and an active adult line targeted to buyers over 55 years of age in Atlanta. We intend to continue to leverage our product, customer and geographic diversification to enhance our growth prospects and profitability while maintaining a conservative financial profile.

      Pursue Disciplined Expansion in Large, High Growth Markets. We currently operate in Atlanta, Dallas, Houston, Orlando and Phoenix, five of the ten largest new residential housing markets in the United States by single-family housing starts. We are initiating operations in Tampa and Denver, the eleventh and fourteenth largest new residential housing markets in the United States. Our seven markets are also some of the fastest growing in the nation, achieving a compounded annual growth rate in single-family housing starts of 5.8% between 1999 and 2004, compared to the national average of 3.7%, according to Global Insight’s estimates. Enhancing our product and price point portfolio in each of our existing markets is central to our growth strategy. We perform extensive research, including customer focus groups, to determine demand for additional product offerings in each of our markets. We target the homebuyer segments with the most attractive demand and supply characteristics, which we identify with the help of proprietary market studies analyzing economic and demographic trends and the competitive environment. We believe our existing markets offer attractive long-term growth opportunities. We further believe we have demonstrated our ability to effectively compete and succeed in our markets through our expansion into townhomes, stacked-flat condominiums and an active adult line in certain of our markets.

      We will also continue to evaluate prudent expansion opportunities into select new markets. Our strategy for growth in new markets is driven by identifying large homebuilding markets with attractive long-term growth prospects and favorable supply and demand characteristics. We typically hire experienced local managers to manage each new market and initially focus on providing homes for the first- and second-time move-up buyer segments. While we consider acquisitions where attractive opportunities are identified, we have historically pursued a strategy of developing start-up operations to drive our expansion in select new markets.

      Acquire and Develop Strong Land Positions. We maintain a rigorous focus on only acquiring land in premier locations, which we believe provides us with superior competitive positioning and enhanced operational performance. We target land opportunities in each of our markets largely through the use of an in-depth analysis of supply and demand fundamentals, combined with site-specific financial feasibility studies, which we prepare with the help of our local operational managers. We utilize strict financial

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hurdles to evaluate each land acquisition opportunity. This process enables us to optimize our financial returns while minimizing our land and inventory risk.

      Additionally, we develop a significant portion of the land we use in our homebuilding operations. We believe that our considerable expertise in land development enables us to maintain attractive land positions, create desirable communities and optimize our financial returns. We intend to continue to utilize our disciplined land selection process and land development expertise to maintain and enhance our strong land positions.

      Manage Inventory Risk and Maintain Conservative Financial Profile. We operate with a conservative approach to financial and inventory management, maintaining prudent leverage and substantial liquidity. We have a disciplined land acquisition process with strict financial hurdles. All land purchases must be approved by our Chief Executive Officer and our Chief Financial Officer. We target a four-year supply of land, achieving a balance of land owned and developed for our own use, and additional lots controlled through option contracts. As of November 30, 2005, our supply of land controlled for use in our homebuilding operations was 4.0 years, consisting of a 2.5-year supply of owned land and a 1.5-year supply of land controlled through option contracts. Additionally, we actively manage our housing inventory by pre-selling substantially all of our homes prior to starting construction, limiting our inventory risk and minimizing our construction cycles. Limitations on the number of speculative units are approved at the corporate level. As of November 30, 2005, we had only 32 completed but unsold homes among our 52 active communities. Our disciplined strategy enables us to maintain a conservative leverage and liquidity profile. As of November 30, 2005, our total debt to total capitalization was 52.5%, and we had $178.2 million available for borrowing under our senior unsecured credit facility. We intend to continue to deploy our capital prudently and efficiently and to maintain a conservative inventory and financial profile.

      Leverage Our Highly Experienced Management Team. We benefit from a strong and experienced senior management team, with our executive officers averaging more than 15 years of experience in the homebuilding industry. Thomas Krobot, our Chief Executive Officer, has 34 years of industry experience and has been with our company since 1995. Robert Salomon, our Chief Financial Officer, has 13 years of industry experience and has been with us since 1998. In addition to our seasoned senior management team, we have an outstanding group of division presidents who manage our individual markets. Each division president brings substantial industry knowledge and deep market expertise, with an average of 16 years of experience in new residential construction.

HISTORY

      We are headquartered in Atlanta, Georgia. We were founded in 1989 in Dallas and have expanded into several growing housing markets primarily in the South and Southwest United States. Since our inception, we have grown organically by forming homebuilding and land development operations in select strategic markets with strong housing and employment growth characteristics.

      Our initial homebuilding operations were established in Dallas in 1989, followed by Houston in 1990 and Atlanta in 1992. We formed land development operations in Denver in 1994 and Orlando in 1998. We focused on growing our core markets until 2001 when we entered a second expansion phase through the formation of homebuilding operations in Orlando in 2001 and Phoenix in 2002. We most recently entered Tampa with homebuilding operations and expanded our presence in Denver with homebuilding operations in fiscal year 2005.

OWNERSHIP

      We are owned by six families or family trusts related to the following individuals: Elly Reisman, Norman Reisman, Bruce Freeman, Seymour Joffe, Larry Robbins and Harry Rosenbaum. The owners control the Company through individual Nevada-based holding companies in which each family or family trust owns all of the equity interests.

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      The same families and family trusts or related parties also control the Great Gulf Group of Companies (“Great Gulf Group”), which was formed in Toronto in 1983. Great Gulf Group’s operations, in addition to Ashton Woods, consist of one of Toronto’s largest homebuilders of single-family attached and detached homes and high rise condominiums, a commercial, retail and industrial properties construction and management company, and other operations focused in land and resort development, as well as diversified financial investments.

MARKETS AND PRODUCTS

      We operate in Atlanta, Dallas, Houston, Orlando and Phoenix and are establishing operations in Tampa and Denver. We evaluate a number of factors in determining which geographic markets to enter. We analyze economic and real estate conditions by evaluating such statistical information as the historical and projected population growth, the number of new jobs created and projected to be created, the number of housing starts in previous periods, building lot availability and price, housing inventory, competitive environment, and home sale absorption rates.

      We generally seek to maintain the flexibility to alter our product mix within a given market depending on market conditions. In determining our product mix in each market we consider demographic trends, demand for a particular type of product, margins, timing and the economic strength of the market. While remaining responsive to market opportunities within the industry, we have focused, and intend to continue to focus, our business primarily on first-time and first- and second-time move-up buyers offering single-family detached homes, townhomes and stacked-flat condominiums, which are developments with four or fewer stories of condominium units.

      During the fiscal year ended May 31, 2005, our homebuilding revenue was comprised of single-family detached homes (79.4% of revenues) and townhomes (20.6% of revenues). While we develop single-family detached homes in all of our markets, townhomes are currently only offered in Atlanta, Orlando and Dallas. In addition, this year we began developing stacked-flat condominiums in the Atlanta and Orlando markets, which we believe will further diversify our product portfolio and appeal to a broader base of customers. For the quarter ended November 30, 2005, our homebuilding revenue was comprised of single-family detached homes (76% of revenues), townhomes (22% of revenues) and condominiums (2% of revenues).

      Our single-family detached homes range in price from $110,000 to over $650,000, and our townhomes range in price from $140,000 to over $400,000. Stacked-flat condominiums have prices ranging from $120,000 to over $170,000.

      As of November 30, 2005, we had 52 active communities in our existing markets, comprised of 41 communities of single-family detached homes, nine communities of townhomes and two communities of stacked-flat condominiums.

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      A summary of our activity by market is as follows:

		Six Months Ended
		November 30, 2005
				Average		As of November 30, 2005
				Sales
		Homes		Price per								Number of
		Closed		Home		Backlog		Sales Value of		Home Sites		Active
		(Units)		Closed		(Units)		Backlog		Remaining(1)		Communities
		(Dollars in thousands)
ATLANTA
	Single-family detached homes		55	$	324		86	$	26,392		607		5
	Townhomes		131		274		71		19,600		286		4
	Stacked-flat condominiums		29		152		166		29,786		154		1
	Active adult homes		—		—		4		894		122		—
DALLAS
	Single-family detached homes		231		219		298		64,417		1,208		12
	Townhomes		—		—		61		12,425		590		3
HOUSTON
	Single-family detached homes		230		224		183		40,425		1,348		12
ORLANDO
	Single-family detached homes		63		344		114		50,040		526		2
	Townhomes		81		210		89		20,537		571		2
	Stacked-flat condominiums		—		—		219		52,391		570		1
PHOENIX
	Single-family detached homes		114	$	386		350		172,157		1,092		9
TAMPA
	Single-family detached homes		—		—		8		3,814		406		1
DENVER
	Single-family detached homes		—				—		—		217		—

(1)  “Home sites remaining” is our estimate of the number of homes that could be built on the lots available for sale (owned and controlled) and land to be developed into lots by us for use in our homebuilding operations. This excludes land in Denver and Orlando that we do not anticipate using in our homebuilding operations.

HOME DESIGN AND DESIGN CENTERS

      We are dedicated to providing high-quality, well-designed homes in desirable communities meeting the demands of today’s homebuyers. The product line offered in a particular community depends upon many factors, including the supply of existing housing and the demand for new housing in the general area. In order to ensure we meet the demand in the marketplace, we conduct in-depth qualitative and quantitative market research including consumer focus groups. This research enables us to improve the linkage between the design of our homes and the community development and meet the specific lifestyle demands of our targeted homebuyer.

      Our in-house architectural team manages outside architects to ensure our home designs provide maximum utilization of space for the wide variety of product offerings ranging from single-family detached homes and townhomes for both first-time homebuyers and move-up homebuyers to our stacked-flat condominiums for first-time homebuyers.

      We maintain fully decorated model homes in each of our communities merchandised to provide the homebuyers with the ability to view the completed product as part of their buying decision. In addition, we utilize our Ashton Woods Homes Design Centers to provide homebuyers the ability to personalize their homes. The design centers are staffed with expert in-house designers who can help make selections from an extensive array of products, including carpets, tiles, cabinets, light fixtures and countertops, among others. Our home design centers are organized to fully facilitate the home buying experience for both first-time homebuyers and move-up homebuyers.

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LAND ACQUISITION AND DEVELOPMENT

      Our land strategy is to maintain a four-year land supply, based on homes closed during the last twelve months, and we believe that our attractive land positions in our markets will enable us to continue to increase our residential production. As of November 30, 2005, we had a land supply for use in our homebuilding operations of approximately 4.0 years, consisting of a 2.5-year supply of owned land and a 1.5-year supply of land controlled through option contracts.

      We typically purchase land only after necessary entitlements have been obtained so that development or construction may begin as market conditions dictate. The term “entitlements” refers to development agreements, tentative maps or recorded plats, depending on the jurisdiction within which the land is located. Entitlements generally give the developer the right to obtain building permits upon compliance with conditions that are ordinarily within the developer’s control. Even though entitlements are usually obtained before land is purchased, we are still required to secure a variety of other governmental approvals and permits during development. The process of obtaining such approvals and permits can substantially delay the development process. For this reason, we may consider, on a limited basis, purchasing unentitled property in the future when we can do so in a manner consistent with our business strategy.

      We select land for control based upon a variety of factors, including:

•  internal and external demographic and marketing studies;

•  project suitability;

•  suitability for development generally within a one to four-year time period from the beginning of the development process to the delivery of the last home;

•  financial review as to the feasibility of the proposed project, including projected profit margins, return on capital employed and the capital payback period;

•  results of environmental and legal due diligence;

•  proximity to local traffic corridors and amenities; and

•  management’s judgment as to the real estate market and economic trends, and our experience in a particular market.

      In addition to the land purchased specifically for our homebuilding operations, we have in the past pursued land development opportunities in which we acquired and developed lots for sale to third party builders in addition to use in our own homebuilding operations. We still hold some of this land for our use and for sale to third party builders in Denver and Orlando, among other markets.

      Our land development activities in Denver consist of the development of custom lots for sale to third party custom builders in Parker, Colorado, which is southeast of Denver. As of November 30, 2005, we held two finished lots, an anticipated 41 finished lots, and 239 lots under development during the coming fiscal years for sale to third parties.

      We believe that we have significant land development expertise which we will continue to leverage in developing land for our own use. However, we do not plan to engage in land development for sale to third parties as a significant aspect of our business in the future.

      We acquire land through purchases, rolling option contracts and joint ventures with other builders or developers. We acquire approximately one-fourth of our land through rolling option contracts, which allow us to control lots and land without incurring the risks of land ownership or financial commitments other than relatively small non-refundable deposits. We enter into option contracts with third parties to purchase finished lots generally as home construction begins. These contracts are generally non-recourse and require non-refundable deposits of 2% to 15% of the sales price. As of November 30, 2005, we had $4.8 million in non-refundable deposits on real estate under option or contract. As of November 30, 2005, we had 7,697 lots under control for use in our homebuilding operations, 4,697 of which are owned by us and 3,000 or 39.0%, of which are available to us through rolling options. As of November 30, 2005, our commitments

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under option contracts with specific performance obligations were $1.2 million. Once we acquire land, we generally initiate development through contractual agreements with local subcontractors. These activities include site planning, engineering and home construction, as well as constructing road, sewer, water, utilities, drainage, recreation facilities and other refinements.

      The following table presents information regarding land owned and land under option by market as of November 30, 2005:

				Lots Under
	Finished			Development			Raw Land			Total Lots			Lots Under			Total Lots
Market	Lots			(# of Lots)			(# of Lots)			Owned			Option*			Controlled
Atlanta		50			602			307			959			210			1,169
Dallas		312			541			0			853			945			1,798
Houston		225			465			—			690			658			1,348
Orlando		17			1,197			110			1,304			363			1,667
Phoenix		7			602			—			609			483			1,092
Tampa		45			237			—			282			124			406
Denver		0			0			—			0			217			217
Total		656			3,624			417			4,697			3,000			7,697
% of total lots controlled		8.5	%		47.1	%		5.4	%		61.0	%		39.0	%

*  Includes (i) options under agreements with unrelated third parties and related parties, (ii) options under agreements with joint ventures with unrelated third parties and related parties, and (iii) 423 lots in Houston held by a joint venture with an unrelated third party that is managed by us and as to which option agreements do not yet exist. All of the controlled lots held by joint ventures described below under “Joint Ventures” are included in “Lots under option”.

      Additionally, two finished lots and 280 lots of raw land and land under development in Denver that are not anticipated to be used in our homebuilding operations.

JOINT VENTURES

      Occasionally, we use partnerships or joint ventures to purchase and develop land where these arrangements are economically advantageous. As of November 30, 2005, we controlled 1,053 lots for future use by our homebuilding operations through joint ventures with unrelated third parties. We anticipate continuing to form new partnerships or joint ventures in the future where economically advantageous.

MARKETING AND SALES

      We believe that we have established a reputation for developing high quality homes, which helps generate interest in each new project. We market our products through a variety of means ranging from fully decorated model homes at each of our communities to newspaper and magazine advertising as well as internet exposure via our website. We focus on continually improving upon our brand awareness and maintaining consistency across our various markets. To this end, we have implemented a standardized sales office design and have increased national advertising to further these initiatives.

      We normally build, decorate, furnish and landscape between one and four model homes for each project and maintain on-site sales offices. As of November 30, 2005, we maintained 112 model homes, all of which were owned. We believe that model homes play a particularly important role in our marketing efforts. Consequently, we expend a significant effort in creating an attractive atmosphere at our model homes. Interior decorations are undertaken by local third-party design specialists, and vary within our models based upon the lifestyles of targeted homebuyers. Structural changes in design from the model homes are generally permitted within specific guidelines, and homebuyers may select various optional amenities through the Ashton Woods Homes Design Centers which allow our homebuyers to personalize their new home. The design centers are staffed with expert in-house designers that can help make selections from an extensive array of resources. Homebuyers can choose from among hundreds of carpets, tiles, floors, cabinets, light fixtures, countertops and more.

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      We generally sell our homes through commissioned employees. Our personnel are available to assist prospective homebuyers by providing them with floor plans, price information, tours of model homes and assisting them with the selection of options. The selection of interior features is a principal component of our marketing and sales efforts. Sales personnel are trained by us and attend periodic meetings to be updated on sales techniques, competitive products in the area, the availability of financing, construction schedules and marketing and advertising plans, which management believes result in a sales force with extensive knowledge of our operating policies and housing products. Our policy also provides that sales personnel be licensed real estate agents where required by law.

      We sometimes use various sales incentives (such as landscaping and certain interior home options and upgrades) in order to attract homebuyers. The use of incentives depends largely on local economic and competitive market conditions.

      Sales of our homes are made pursuant to home sale contracts the terms of which vary according to market practices and to the legal requirements of the markets in which they are used. Typically, each contract requires a deposit from the homebuyer, which may vary from five to 40 percent of the purchase price, according to product type and market practice. In addition, the home sale contract typically contains a financing contingency. The financing contingency provides homebuyers with the right to cancel in the event they are unable to obtain financing at a prevailing interest rate within a specified time period from the execution of the home sale contract.

CUSTOMER FINANCING

      As part of our objective to make the home buying process more convenient and to increase the efficiency of our building cycle, we originate mortgages for our customers through Ashton Woods Mortgage, LLC, which is a joint venture with Wells Fargo Home Mortgage. It has a mortgage capture rate (representing the percentage of our homes closed with mortgages originated by Ashton Woods Mortgage, LLC) of more than 60.0% and does not retain or service the mortgages that it originates. Ashton Woods Mortgage, LLC provides mortgage origination services only, and it originates mortgage financing for qualified homebuyers for the ultimate purchase of our homes. Upon origination, the mortgages are sold concurrently to Wells Fargo Home Mortgage or other third party mortgage companies as deemed necessary by Wells Fargo Home Mortgage. We record Ashton Woods Mortgage, LLC’s earnings using the equity method of accounting, and its earnings are a component of the line item of “Earnings in unconsolidated entities” on our income statement.

TITLE SERVICES

      We also offer title services to our homebuyers in Dallas and Houston through 49.0% ownership interests in two title companies. The title service companies are managed by, and all underwriting risks associated with the title are transferred to, the majority owners of these companies. The earnings from these title companies are recorded using the equity method of accounting, and the earnings are a component of the line item “Earnings in unconsolidated entities” on our income statement.

CONSTRUCTION

      We act as the general contractor for the construction of our projects. Subcontractors are typically retained on a project-by-project basis to complete construction at a fixed price. Agreements with our subcontractors and material suppliers are generally entered into after competitive bidding. Our divisional project operators supervise the construction of each project, coordinate the activities of subcontractors and suppliers, subject their work to quality and cost controls and assure compliance with zoning and building codes.

      We specify that quality, durable materials be used in the construction of our homes. We have numerous suppliers of raw materials and services used in our business, and such materials and services have been and continue to be available. From time to time we enter into regional and national supply contracts with certain of our vendors to leverage our purchasing power and size to control costs. However, we do not have any material long-term contractual commitments with any of our subcontractors or suppliers. We do not maintain inventories of construction materials except for materials being utilized for

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homes under construction. Material prices may fluctuate due to various factors, including demand or supply shortages, which may be beyond the control of our vendors. We believe that our relationships with our suppliers and subcontractors are good.

      Construction time for our homes depends on the availability of labor, materials and supplies, the type and size of the home, location and weather conditions. Our homes are designed to promote efficient use of space and materials, and to minimize construction costs and time. In all of our markets, construction of a home is typically completed within four to five months following commencement of construction.

WARRANTY PROGRAM

      We offer a standard one, two, ten-year warranty program. The one-year limited warranty covers workmanship and materials and includes home inspection visits with the customer. We subcontract our homebuilding work to subcontractors who provide us with an indemnity and a certificate of insurance prior to receiving payments for their work and, therefore, claims relating to workmanship and materials are generally the primary responsibility of our subcontractors. In addition, the first year of our warranty covers defects in plumbing, electrical, heating, cooling and ventilation systems, and construction defects. The second year of the warranty covers construction defects and certain defects in plumbing, electrical, heating, cooling and ventilation systems of the home (exclusive of defects in appliances, fixtures and equipment). The remaining years of protection cover only construction defects.

      We record a liability of approximately 0.7% to 1.0% of the sales price of a home to cover warranty expenses, although this allowance is subject to adjustment in special circumstances. Our historical experience is that warranty expenses generally fall within the amount established for such allowance.

      In addition, we maintain insurance coverage with Residential Warranty Corporation for construction defects. We believe that our accruals and third party insurance are adequate to cover the ultimate resolution of our potential liabilities associated with known and anticipated warranty and construction defect related claims and litigation.

CORPORATE OPERATIONS

      We perform the following functions at a centralized level:

•  evaluate and select geographic markets;

•  allocate capital resources to particular markets, including final approval of all land acquisitions;

•  regulate the flow of financial resources and maintain relationships with our lenders;

•  maintain centralized information systems; and

•  monitor the decentralized operations of our subsidiaries and divisions.

      We allocate capital resources necessary for new projects in a manner consistent with our overall operating strategy. We utilize return on assets, gross margins, net income margin and inventory turnover as the primary criteria for our allocation of capital resources. We will vary the capital allocation based on market conditions, results of operations and other factors. Capital commitments are determined through consultation among selected executive and operational personnel, who play an important role in ensuring that new projects are consistent with our strategy. Centralized financial controls are also maintained through the standardization of accounting and financial policies and procedures.

      Structurally, we operate through separate divisions, which are located within the market in which they operate. Each division is managed by executives with substantial experience in the division’s market. In addition, each division is equipped with the skills to complete the functions of land acquisition, land development, construction, marketing, sales, product service and accounting.

COMPETITION AND MARKET FACTORS

      The development and sale of residential properties is highly competitive and fragmented. We compete with numerous small and large residential builders for sales on the basis of a number of interrelated factors, including location, reputation, amenities, design, quality and price. We also compete for sales with

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individual resales of existing homes, available rental housing and resales of stacked-flat condominiums. We believe that we compare favorably to other builders in the markets in which we operate, due primarily to our experience within our geographic markets and breadth of product line, which allows us to vary our product offerings to reflect changing conditions within a market; our responsiveness to market conditions, enabling us to capitalize on the opportunities for advantageous land acquisitions in desirable locations; and our reputation for quality design, construction and service. Notwithstanding our perceived advantages with respect to other builders, some of our competitors have significantly greater financial resources or lower costs than we do. Because some of our competitors are larger than us, they may possess certain advantages over us, such as the ability to raise money at lower cost and the ability to negotiate significantly better prices on supplies and with subcontractors. Certain of our smaller competitors may have an advantage over us because they tend to have closer ties to the communities in which they build and, based on length of operation in the market, better name recognition than us. Furthermore, many custom homebuilders may have an advantage over us because purchasers of custom homes tend to want a level of flexibility in the design and construction of their homes that we do not offer.

      The demand for new housing is affected by consumer confidence levels and prevailing economic conditions generally, including employment and interest rate levels. A variety of other factors affect the housing industry and demand for new homes, including the availability of labor and materials and increases in the costs thereof, changes in costs associated with home ownership such as increases in property taxes and energy costs, changes in consumer preferences, demographic trends and the availability of and changes in mortgage financing programs.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

      Substantially all of our land is purchased with entitlements, giving us the right to obtain building permits upon compliance with specified conditions, which generally are within our control. Upon compliance with such conditions, we must obtain building permits. The length of time necessary to obtain such permits and approvals affects the carrying costs of unimproved property acquired for the purpose of development and construction. In addition, the continued effectiveness of permits already granted is subject to factors such as changes in policies, rules and regulations and their interpretation and application. Several governmental authorities have imposed impact fees as a means of defraying the cost of providing certain governmental services to developing areas. To date, the governmental approval processes discussed above have not had a material adverse effect on our development activities and have not had a material effect on our capital expenditures, earnings and competitive position, and indeed all homebuilders in a given market face the same fees and restrictions. There can be no assurance, however, that these and other restrictions will not adversely affect us in the future.

      We may also be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums or “slow-growth” or “no-growth” initiatives or building permit allocation ordinances which could be implemented in the future in the states and markets in which we operate. Substantially all of our land is entitled and, therefore, the moratoriums generally would only adversely affect us if they arose from health, safety and welfare issues such as insufficient water or sewage facilities. Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction. These fees are normally established, however, when we receive recorded final maps and building permits. We are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. Although in the future these laws may result in delays, cause us to incur substantial compliance and other costs, and prohibit or severely restrict development in certain environmentally sensitive regions or areas, these laws have not had a material effect on our capital expenditures, earnings and competitive position.

LETTERS OF CREDIT

      We are frequently required, in connection with the development of our projects, to obtain letters of credit in support of our related obligations with respect to such developments. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any letters of credit are drawn upon, we would be obligated to reimburse the issuer of such letters of

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credit. As of November 30, 2005, we had outstanding $9.3 million of letters of credit related to our obligations to local governments to construct roads and other improvements in various developments. We do not believe that any such letters of credit will be drawn upon.

      Occasionally, we are required to post surety bonds, however, the amounts of these surety bonds have not been material.

EMPLOYEES AND SUBCONTRACTORS

      As of November 30, 2005, we employed 475 people, of whom 105 were sales and marketing personnel, 176 were executive, management and administrative personnel and 194 were involved in construction. Although none of the our employees are covered by collective bargaining agreements, certain of the subcontractors engaged by us are represented by labor unions or are subject to collective bargaining arrangements. We believe that our relations with our employees and subcontractors are good.

PROPERTIES

      We lease 6,284 square feet of office space in Atlanta, Georgia for our corporate offices. This lease expires in 2008. In addition, we lease 84,242 square feet of space for our operating divisions under leases expiring between 2006 and 2009. The leases have terms ranging from 12 months to 60 months, with various renewal options.

LEGAL PROCEEDINGS

      From time to time we are involved in various routine legal proceedings incidental to our business. We believe that none of these matters, some of which are covered by insurance, will have a material adverse impact upon our consolidated financial statements as a whole if decided against us.

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Management

       The following table presents information with respect to our executive officers and directors as of January 1, 2006:

Executive Officers and Directors

Name	Age		Position
Thomas Krobot		58	President, Chief Executive Officer and Director
Robert Salomon		45	Chief Financial Officer
Tad Serbin		45	Vice President of Sales and Marketing
Ralph Farrell		53	Vice President of Construction
Seymour Joffe		53	Director
Bruce Freeman		57	Director
Harry Rosenbaum		56	Director

      Mr. Krobot has served as our President and Chief Executive Officer since 1995 and as a member of our Board since September 2005. Before joining the Company, Mr. Krobot worked for Ryland Homes as a Senior Vice President responsible for seven cities, one lumber yard and over 2,000 units per year in the Southeast Region (Georgia, North Carolina, South Carolina, Florida) and as a Regional Manager of its Midwest Region (Columbus and Cincinnati, Ohio and Indianapolis, Indiana). Mr. Krobot is a graduate of the University of Dayton.

      Mr. Salomon has served as our Chief Financial Officer since 1998. Before joining the Company, Mr. Salomon worked for MDC Holdings, Inc., most recently as the Senior Vice President of Finance of its homebuilding division in California, Richmond American Homes. Mr. Salomon is a graduate of The University of Iowa and a member of the American Institute of Certified Public Accountants.

      Mr. Serbin joined the Company in 2002 as Vice President of Sales and Marketing. Prior to joining the Company, he was Vice President of Sales and Marketing for Pulte Homes in Orlando, Florida. Mr. Serbin is a graduate of the California State College in Hayward, California where he received a degree in Business Administration.

      Mr. Farrell joined the Company in December 2004 as the Vice President of Construction. From July 2000 to November 2004, Mr. Farrell was employed with Centex Homes as the Vice President of Construction in Atlanta, Georgia. From 1989 to 2000, Mr. Farrell was a Construction Manager for Pulte Homes in Atlanta, Georgia and the Washington Metro Area in Maryland.

      Mr. Joffe, a member of our Board or our prior management committee since 1997, is a founder of the Great Gulf Group and is its Chief Financial Officer. Prior to 1983, Mr. Joffe worked in real estate and public accounting. Mr. Joffe qualified as a Chartered Accountant in South Africa and in Canada.

      Mr. Freeman, a member of our Board or our prior management committee since 1997, is a founder of the Great Gulf Group and is its Executive Vice President. Prior to 1983, Mr. Freeman was the Vice President of Sales for Great Gulf Homes. Mr. Freeman has worked in residential real estate marketing since 1969.

      Mr. Rosenbaum, a member of our Board or our prior management committee since 1997, is a founder of the Great Gulf Group and is its Chief Operating Officer. Prior to 1983, Mr. Rosenbaum was a partner

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in a law practice. Mr. Rosenbaum graduated as a lawyer from Osgoode Hall Law School and was called to the bar in 1976.

SUMMARY COMPENSATION TABLE

      The following table sets forth information for the years ended May 31, 2005, 2004 and 2003 with respect to compensation earned by or paid to our Chief Executive Officer and each of our three most highly compensated executive officers other than the Chief Executive Officer.

		Annual Compensation
								Other Annual		All Other
				Salary		Bonus		Compensation		Compensation
Name and Principal Position		Year		($)		($)		($)		($)
Thomas Krobot			2005		225,000		1,306,896
	President and Chief		2004		225,000		1,095,415		—		—
	Executive Officer		2003		225,000		477,673		—		—
Robert Salomon			2005		168,335		364,850
	Chief Financial Officer		2004		160,008		248,854		—		—
			2003		160,024		126,631		—		—
Tad Serbin			2005		159,167		176,000
	VP of Sales and Marketing		2004		150,000		282,034		—		—
			2003		124,553		137,500		—		—
Tim Frost(1)			2005		125,000		62,500
	Former VP of Architecture		2004		119,000		55,000		—		—
			2003		114,887		40,000		—		—

(1)  Mr. Frost resigned effective December 31, 2005

EMPLOYMENT AGREEMENT

      On January 30, 2006, we entered into an employment agreement with our President and Chief Executive Officer, Tom Krobot. The agreement, which is effective as of June 1, 2005, is for a term of approximately five years ending May 31, 2010. The employment agreement provides for an annual base salary of $225,000 and an annual bonus in an amount equal to 4.0% of the first $10,000,000 and 3.0% of any amount in excess of $10,000,000 of our annual net income, calculated in accordance with generally accepted accounting principles and reflected in our annual audited financial statements, as adjusted to exclude imputed interest on equity, bonuses paid at the operational level and specific projects as agreed from time to time. The agreement also provides for certain incentive payments upon a sale of the Company, irrespective of form, or the consummation by the Company of an initial public offering of equity securities. Such payments are due upon the sale of the Company or initial public offering irrespective of the executive’s continued employment with us. The incentive payment owed upon the sale of the Company will be equal to an amount determined by multiplying the excess of the aggregate purchase price paid by the buyer or buyers in such transaction over the book value of the Company, as determined in good faith by our board of directors, at the time of such sale by 3.0%, provided such payment is subject to a floor of $3,000,000.

      Upon an initial public offering, Mr. Krobot is entitled to a payment equal to 3.0% of the excess of the aggregate value of the Company at such time, determined based on the excess of valuation applied in the offering, over the then book value of the Company, as determined in good faith by our board of directors, subject to a minimum of $3,000,000. The payment upon an initial public offering shall be paid through the issuance of stock with an aggregate value equal to the payment owed, if possible, otherwise, such payment shall be made in cash or some other mutually agreed upon method.

      Following the payments of amounts owed to Mr. Krobot upon a sale of initial public offering of the Company, the agreement will terminate, and Mr. Krobot will continue as an at will employee. The

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agreement also provides Mr. Krobot with certain severance payments upon termination of his employment as follows:

•  Upon termination for cause, as defined in the agreement, or voluntary resignation by Mr. Krobot, in addition to accrued salary through the date of termination, Mr. Krobot will be entitled for each year of employment completed between fiscal years beginning June 1, 2005 and ending May 31, 2009, to a payment of $400,000 and for completion of the fiscal year June 1, 2009 to May 31, 2010 to a payment of $1,400,000.

•  Upon termination of employment upon death or disability, in addition to base salary accrued through the date of termination, Mr. Krobot or his estate, will be entitled to a payment in an amount equal to the greater of (a) $3,000,000 or (b) a prorated portion (based on the number of years of the term of the agreement that has expired divided by five), of 3.0% of the excess of the then-determined public market value of the Company over the book value of the Company, in each case as determined in good faith by the board of directors.

•  Upon termination without cause, in addition to base salary accrued through the date of termination, Mr. Krobot will be entitled to a payment equal to the greater of: (a) the sum of one year’s base salary at the rate then in effect plus a bonus payable pursuant to the annual bonus provisions of the agreement based on projections of our net income for the following 12 months, plus an amount equal to a bonus calculated in such manner based on a pro rata share of net income for the then-current fiscal year; or (b) the sum of a bonus calculated in accordance with the annual bonus provisions of the agreement pro rated based on net income for the then-current fiscal year plus 3.0% of the excess of the then-determined public market value of the Company over the then-book value of the Company, in each case as determined in good faith by the board of directors, subject to a minimum of $3,000,000.

•  If Mr. Krobot’s employment terminates upon expiration of the term of the agreement, Mr. Krobot will be entitled to a payment equal to 3.0% of the excess of then-public market value of the Company as compared to the book value of the Company, in each case as determined in good faith by the board of directors, subject to a minimum payment of $3,000,000.

•  Upon the sale of the Company, if Mr. Krobot’s employment is terminated, in addition to the incentive payment described above and his base salary accrued through the date of termination, Mr. Krobot will receive an amount equal to a bonus calculated in accordance with the annual bonus provisions described above based on a pro rated share of net income for the current fiscal year to the date of termination.

      Finally, the Agreement provides that we will provide health insurance for Mr. Krobot and his spouse, whether or not Mr. Krobot is an employee of ours, until he reaches the age of 65, upon the same terms then available to executive officers of the Company.

AUDIT COMMITTEE FINANCIAL EXPERT

      The Company does not have an audit committee. Since our securities are not currently listed on or with a national securities exchange or national securities association, we are not required to have an independent audit committee. Further, given the small size of the Board, the Board believes it appropriate for all members of the Board to be involved in the discussions and decisions typically delegated to an audit committee. Our Board has determined that Mr. Joffe meets the qualifications of an “audit committee financial expert” as defined in the rules and regulations of the SEC but does not meet the definition of an “independent director” under the rules promulgated by Nasdaq or the New York Stock Exchange as a result of his affiliation with our ownership group. However, because our securities are not listed on a national securities exchange or in an automated inter-dealer quotation system of a national securities association, we are not required to have an audit committee financial expert who is an “independent director.”

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DIRECTOR COMPENSATION

      The members of our Board of Directors do not receive compensation for services as our directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      The entire Board of Directors undertakes the duties of the Compensation Committee with respect to the compensation of Messrs. Krobot and Salomon. Mr. Krobot, with input from Mr. Salomon, determines the compensation of the other executive officers. Subsequent to the end of our last fiscal year, Mr. Krobot, our President and Chief Executive Officer, became a member of our Board of Directors. As a member of the Board of Directors, he will participate in discharging the duties of the Compensation Committee.

      For a discussion of transactions between us and certain affiliates of members of our Board of Directors, see “Certain relationships and related transactions.”

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Security ownership

       The following table sets forth certain information as of January 1, 2006 regarding the beneficial ownership of the membership interests in the Company. In addition, the footnotes below explain that certain of the persons or entities listed in the table have special membership interests entitling them to allocations of profits and cash distributions in the land development activities in Denver, Colorado and Orlando, Florida of certain of the Company’s subsidiaries. Ashton Woods Finance co. is a wholly-owned subsidiary of the Company.

	Membership
Name and Address of Beneficial Owner	Interest(1)
Seymour Joffe(2),(3)		27.5	%
Bruce Freeman(2),(3)		27.5	%
Harry Rosenbaum(2),(3)		27.5	%
Thomas Krobot		—
Robert Salomon		—
Tad Serbin		—
Ralph Farrell		—
All directors and executive officers as a group		27.5	%
Elly Nevada Inc.(2),(4),(7)		31.9	%
Norman Nevada Inc.(2),(5),(7)		31.9	%
Larry Nevada Inc.(2),(6),(7)		8.6	%
Little Shots Nevada L.L.C.(2),(7)		27.5	%

(1)	Beneficial ownership is determined in accordance with Section 13 of the Exchange Act and the rules promulgated thereunder. Accordingly, if an individual or entity is a member of a “group” which has agreed to act together for the purpose of acquiring, holding, voting or disposing of membership interests, such individual or entity is deemed to be the beneficial owner of the membership interests held by all members of the group. Further, if an individual or entity has or shares the power to vote or dispose of membership interests held by another entity, beneficial ownership of the interests held by such entity may be attributed to such other individuals or entities.
(2)	The address of this beneficial owner is 3751 Victoria Park Ave, Toronto, Ontario M1W 3Z4 Canada.
(3)	Entities and/or family trusts associated with these individuals hold interests (including the special membership interests referred to in footnote 7 below) in the Company through Little Shots Nevada L.L.C. For beneficial ownership purposes, the membership and special membership interests held by Little Shots Nevada L.L.C. are attributable to each such individual. The entities associated with each such individual have, respectively, a 26.4% ownership interest in Little Shots Nevada L.L.C. and are entitled to receive an allocation of 26.9% of any proceeds received by Little Shots Nevada L.L.C. as a result of its 21.0% special membership interest in the Denver, Colorado land development activities and its 21.0% special membership interest in the Orlando, Florida land development activities.
(4)	This entity is owned by entities and/or family trusts associated with Elly Reisman.
(5)	This entity is owned by entities and/or family trusts associated with Norman Reisman.
(6)	This entity is owned by entities and/or family trusts associated with Larry Robbins.

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(7)  These and other related entities also hold special membership interests in allocations of profits and cash distributions in the land development activities in Denver, Colorado and Orlando, Florida of certain of the Company’s subsidiaries as follows:

	Denver			Orlando
Little Shots Nevada L.L.C.		21.0	%		21.0	%
Elly Colorado Inc.		29.3	%		—
Elly Nevada Inc.		—			29.3	%
Norman Colorado Inc.		29.3	%		—
Norman Nevada Inc.		—			29.3	%
Larry Colorado Inc.		20.5	%		—
Larry Nevada Inc.		—			20.5	%

      As noted in footnote 3 above, entities and/or family trusts associated with Seymour Joffe, Bruce Freeman and Harry Rosenbaum are entitled to receive a portion of the proceeds received by Little Shots Nevada L.L.C. through allocations on such special membership interests based on their respective percentage ownership interests in Little Shots Nevada L.L.C. as set forth in footnote 3.

      Special membership interests do not entitle the holders thereof to vote or otherwise participate in the management or operation of the Company or any of its subsidiaries.

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Certain relationships and related transactions

       In August 2005, we entered into a Services and Software License Agreement (the “Services and License Agreement”) with Paramount Development Corporation Limited (“Paramount”), which is an affiliate of the Great Gulf Group. Under the Services and License Agreement, which is effective as of June 1, 2005, Paramount licenses to us and our affiliates certain software which we use in performing the following functions: accounting, job costing, work order, home warranty, home design, scheduling, and purchase orders. Furthermore, pursuant to the Services and License Agreement, Paramount provides us and our affiliates with the services of its employees to assist us with land development matters relating to our land operations in Orlando and Denver. In return for the software license and the land development services, we pay Paramount a fee of $600 for each home closed. The initial term of the Services and License Agreement is two years and will automatically renew for successive one-year terms unless either party gives notice that the agreement will not be renewed.

      Although we did not have a written agreement with Paramount covering the software license and land development services prior to entering into the Services and License Agreement, Paramount provided us with such software and services in return for a payment of $600 for each home closed. During the six-month periods ended November 30, 2005, and November 30, 2004, and during fiscal years 2005, 2004 and 2003, we paid Paramount $0.6 million, $0.5 million, $1.1 million, $1.1 million and $0.8 million, respectively, for the software license and land development services.

      We, in the ordinary course of our business, from time to time enter into lot option purchase agreements to facilitate the development of land for our use with entities that are owned directly or indirectly by the seven families that indirectly own our membership interests or that are otherwise affiliates of the Great Gulf Group. These entities generally obtain secured acquisition and development financing which is supported by specific performance requirements under our lot option purchase agreements. As of May 31, 2005, we were party to several lot option purchase agreements with such related parties for the acquisition of 386 finished lots, of which 164 finished lots remain to be purchased as of May 31, 2005 for a remaining aggregate purchase price of $14.5 million. As of November 30, 2005, we were party to several lot option purchase agreements with the same related parties for the acquisition of 221 finished lots, of which 76 finished lots remain to be purchased as of November 30, 2005 for a remaining aggregate purchase price of $5.9 million. These option purchase agreements were entered into prior to January 1, 2004 and, while qualifying as variable interest entities are not required to be consolidated under FIN 46R. At November 30, 2005 and May 31, 2005, the Company had $0.2 million and $1.7 million, respectively, of non-refundable deposits securing the lot options and specific performance lot purchase requirements. As of May 31, 2004, we had an additional lot option purchase agreement with Larelnor Developments Inc., a related party, to acquire 224 finished lots at an aggregate price of $12.4 million, of which 10 lots remained to be purchased at such date. Such 10 lots were purchased during the first quarter of fiscal 2005 for a purchase price of $0.5 million.

      As of May 31, 2005, we had three lot purchase contracts with such related parties to acquire 611 finished lots at an aggregate price of approximately $33.0 million which have created variable interests and of which 504 finished lots remain to be purchased for an aggregate price of $27.5 million. As of November 30, 2005, we had 3 lot purchase contracts with such related parties to acquire 443 finished lots at an aggregate price of approximately $25.9 million which have created variable interests. In addition, the Company has provided various specific performance guarantees under the option purchase contracts, which have been deemed as providing subordinated financial support to the entities, of which 25 finished lots remain to be purchased under its specific performance obligations for an aggregate purchase price of $1.2 million as of November 30, 2005 and 49 finished lots remained to be purchased under its specific performance obligations for an aggregate purchase price of $2.4 million as of May 31, 2005. As of November 30, 2005 and May 31, 2005, the Company had $0.5 million and $0.7 million, respectively, of non-refundable deposits securing the remaining lot options. While the Company owns no equity interest in these entities, it must consolidate the entities pursuant to FIN 46R.

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      We used $12.9 million of the proceeds from the issuance and sale of the original notes to repay in full an unsecured note with another related party. The note bore interest at the U.S. prime lending rate plus 0.75% per annum and was payable upon demand. As of May 31, 2005, 2004 and 2003 there was $13.7 million, $3.4 million and $22.1 million outstanding under such note, respectively.

      We believe that the transactions described above between us and the various related parties have been and will continue to be on terms no less favorable to the Company than those available from unaffiliated third-parties in transactions negotiated at arms-length. We do not intend to enter into any transactions in the future with or involving any of our officers or directors or any members of their immediate family on terms that would be less favorable to the Company than those that would be available from unaffiliated third-parties in arms-length transactions.

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Description of other indebtedness

       The following is a summary of the material terms of the agreements that govern certain of our outstanding debt other than the notes.

SENIOR UNSECURED CREDIT FACILITY

      On January 20, 2005, we entered into a senior unsecured credit facility with a group of lenders and Wachovia Bank, National Association, as agent for the lenders, which was amended and restated on December 16, 2005. The senior unsecured credit facility, as amended, provides for up to $300.0 million of unsecured borrowings, subject to a borrowing base, and includes an uncommitted accordion feature pursuant to which we may request, subject to certain conditions, an increase of the senior unsecured credit facility up to a maximum of $400.0 million. Our obligations under the senior unsecured credit facility are guaranteed by certain of our subsidiaries and our equity owners. The senior unsecured credit facility ranks senior in right of payment to all of our subordinated indebtedness, including the notes.

      The senior unsecured credit facility provides for the issuance of up to $50.0 million in letters of credit outstanding at any one time, and for borrowings of up to $10.0 million on same-day notice, referred to as the swingline loans.

      The maturity date of the senior unsecured credit facility is January 19, 2010. However, once during each fiscal year we may request that the lenders extend the maturity date by an additional year.

      Borrowings under the senior unsecured credit facility are limited by the availability of sufficient real estate borrowing base, which is determined regularly throughout the life of the senior unsecured credit facility. The composition of the borrowing base is limited to certain parameters set forth in the senior unsecured credit facility agreement and each type of real estate (such as unimproved entitled land, lots under development, finished lots, presold housing units, speculative housing units and model housing units) is removed from the borrowing base if held beyond specified maturity dates. As of November 30, 2005, we had borrowings of approximately $46.8 million under the senior unsecured credit facility and had available borrowings of $178.2 million. Had we entered into the amended and restated senior unsecured credit facility during the period ended November 30, 2005, we would have had $228.4 million of available borrowings.

      Borrowings under the senior unsecured credit facility generally bear interest based on an applicable margin plus LIBOR or an alternate base rate. Fees for letters of credit under the senior unsecured credit facility are based on an applicable margin plus LIBOR. The applicable margins for both interest and fees for letters of credit range from 1.25% to 1.75%, depending upon our ratio of consolidated debt to consolidated net worth. A commitment fee equal to 0.2% to 0.25% per year, depending on our ratio of consolidated debt to consolidated net worth, accrues on the undrawn portion of the senior unsecured credit facility, and such fee is payable quarterly in arrears.

      The senior unsecured credit facility contains a number of customary financial and operating covenants, including covenants:

•  requiring us to maintain a minimum consolidated tangible net worth of at least $90.3 million plus 50.0% of net income earned in each quarter after November 30, 2004 (excluding quarters where net income is not positive) plus 50.0% of the net proceeds received for any of our capital stock or other equity interests sold after January 20, 2005;

•  requiring us to maintain a ratio of consolidated/total liabilities to adjusted net worth not in excess of 2.25x;

•  requiring us to maintain an interest coverage ratio of at least 2.5x;

•  limiting the principal amount of our secured debt to $50.0 million at any given time;

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•  limiting the net book value of our unimproved entitled land to 25.0% of our adjusted tangible net worth;

•  limiting the net book value of our unimproved entitled land, lots under development and finished lots to 150.0% of our adjusted tangible net worth;

•  limiting the aggregate distributions by us and our subsidiaries in any fiscal year (other than certain distributions made to our members to cover the income taxes due by them as a result of our being a pass- through entity) to any person or entity other than us to no more than (i) 50.0% of our consolidated net income earned between June 1, 2004 and the date of the distribution plus (ii) 100% of the amounts we and our subsidiaries receive from contributions to common equity made after June 1, 2005 or from the issuance and sale of equity interests after June 1, 2005 minus (iii) the amount of any distributions previously made between June 1, 2004 and the date of such distribution;

•  restricting the sale or transfer of more than 20.0% of the ownership interests in us or any subsidiary guarantor;

•  restricting our ability to incur additional indebtedness;

•  restricting the number of speculative housing units and model housing units as of the end of any fiscal quarter to a maximum of 35.0% of our housing unit closings during the previous 12-month period; and

•  restricting our ability to engage in mergers and consolidations and our ability to sell all or substantially all of our assets.

      The senior unsecured credit facility also contains customary events of default, including but not limited to payment defaults, breaches of representations and warranties, covenant defaults, bankruptcy, the occurrence of certain ERISA events, material judgments and cross-defaults to certain indebtedness. If such an event of default were to occur, the lenders under the senior unsecured credit facility would be entitled to take various actions, including acceleration of all amounts due and termination of their commitments thereunder. As of November 30, 2005, we were in compliance with the covenants under the senior unsecured credit facility.

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Description of the notes

       As used below in this “Description of the notes” section, the “Issuer” means Ashton Woods USA L.L.C., a Nevada limited liability company, and its successors, but not any of its subsidiaries. The Issuer and Ashton Woods Finance Co., a Delaware corporation and a wholly owned subsidiary of the Issuer (the “Co-Issuer”), issued the original notes and will issue the notes described in this prospectus (the “Notes”) under an Indenture, dated as of September 21, 2005 (the “Indenture”), among the Issuer, the Co-Issuer, the Guarantors and U.S. Bank National Association, as trustee (the “Trustee”). The terms of the Notes include those set forth in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. You may obtain a copy of the Indenture from the Issuer at its address set forth elsewhere in this prospectus.

      The following is a summary of the material terms and provisions of the Notes. You can find definitions of certain terms used in this description under the heading “— Certain Definitions.”

PRINCIPAL, MATURITY AND INTEREST

      The Notes will mature on October 1, 2015. The original notes bear interest, and the new notes will bear interest, at the rate of 9.5% per year from September 21, 2005, or as to the new notes, from the last date on which interest was paid, payable on April 1 and October 1 of each year, commencing on April 1, 2006, to Holders of record at the close of business on March 15 or September 15, as the case may be, immediately preceding the relevant interest payment date. Interest on the Notes will be computed on the basis of a 360-day year of twelve 30-day months.

      The Notes will be issued in registered form, without coupons, and in denominations of $1,000 and integral multiples of $1,000.

      We are offering to exchange up to $125.0 million aggregate principal amount of new notes for a like principal amount of original notes. The Issuer and the Co-Issuer may issue additional Notes having identical terms and conditions to the Notes, except for issue date, issue price and first interest payment date, in an unlimited aggregate principal amount (the “Additional Notes”), subject to compliance with the “Limitations on Additional Indebtedness” covenant described below. Any Additional Notes will be part of the same issue as the Notes being issued in this offering and will be treated as one class with the Notes, including, without limitation, for purposes of voting, redemptions and offers to purchase. For purposes of this “Description of the notes,” except for the covenant described under “— Certain Covenants — Limitations on additional indebtedness,” references to the Notes include Additional Notes, if any.

METHODS OF RECEIVING PAYMENTS ON THE NOTES

      If a Holder has given wire transfer instructions to the Issuer at least ten Business Days prior to the applicable payment date, the Issuer and the Co-Issuer will make all payments on such Holder’s Notes in accordance with those instructions. Otherwise, payments on the Notes will be made at the office or agency of the paying agent (the “Paying Agent”) and registrar (the “Registrar”) for the Notes within the City and State of New York unless the Issuer and the Co-Issuer elect to make interest payments by check mailed to the Holders at their addresses set forth in the register of Holders.

SUBORDINATION OF NOTES

      The payment of all Obligations on or relating to the Notes will be subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations due in respect of Senior Debt of the Issuer and the Co-Issuer, including all Obligations with respect to the Credit Facilities, whether outstanding on the Issue Date or incurred after that date.

      The holders of Senior Debt will be entitled to receive payment in full in cash or Cash Equivalents of all Obligations due in respect of Senior Debt before the Holders of Notes will be entitled to receive any payment or distribution of any kind or character with respect to any Obligations on or relating to the

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Notes (other than in Permitted Junior Securities) in the event of any distribution to creditors of the Issuer or the Co-Issuer:

•  in a total or partial liquidation, dissolution or winding up of the Issuer or the Co-Issuer;

•  in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Issuer or the Co-Issuer or their respective assets;

•  in an assignment for the benefit of creditors; or

•  in any marshalling of the assets and liabilities of the Issuer or the Co-Issuer.

      If a payment or distribution is made to the holders of the Notes that, due to the subordination provisions, should not have been made to them, such holders are required to hold it in trust for the holders of the Senior Debt and pay the payment or distribution over to the holders of the Senior Debt, as their interests may appear.

      In addition, neither the Issuer nor the Co-Issuer may make any payment or distribution of any kind or character with respect to any Obligations on or relating to the Notes or acquire any Notes for cash or assets or otherwise (other than, in either case, Permitted Junior Securities), if:

•  a payment default (whether at stated maturity, upon acceleration or otherwise) on any Senior Debt occurs and is continuing beyond any applicable grace period; or

•  any other default occurs and is continuing on any Designated Senior Debt that permits holders of such Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of such default (a “Payment Blockage Notice”) from the Representative of such Designated Senior Debt.

      Payments on and distributions with respect to any Obligations on or with respect to the Notes may and shall be resumed:

•  in the case of a payment default (whether at stated maturity, upon acceleration or otherwise), upon the date on which all payment defaults are cured or waived; and

•  in case of a nonpayment default, the earliest of (1) the date on which all such nonpayment defaults are cured or waived, (2) 179 days after the date on which the applicable Payment Blockage Notice is received or (3) the date on which the Trustee receives notice from the Representative for such Designated Senior Debt rescinding the Payment Blockage Notice, unless the maturity of any Designated Senior Debt has been accelerated.

      No new Payment Blockage Notice may be delivered unless and until 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice.

      No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 consecutive days. Any subsequent action or any breach of any covenants for a period ending after the date of delivery of the initial Payment Blockage Notice that in either case would give rise to a default pursuant to any provisions under which a default previously existed or was continuing will constitute a new default for this purpose.

      Notwithstanding anything to the contrary, payments and distributions made from the trust established pursuant to the provisions described under “— Legal Defeasance and Covenant Defeasance” or “Satisfaction and Discharge” will be permitted and will not be subordinated so long as the payments into the trust were made in accordance with the requirements described under “— Legal Defeasance and Covenant Defeasance” or “Satisfaction and Discharge” and did not violate the subordination provisions when they were made.

      The Issuer must promptly notify the Representative of the Senior Debt if payment of the Notes is accelerated because of an Event of Default. In such case, no payment or distribution with respect to any Obligations on or with respect to the Notes may be made until five Business Days after the Representative

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of the Senior Debt receives notice of such acceleration and, after such five Business Day period, payment or distribution with respect to any Obligations on or with respect to the Notes may be made only if the subordination provisions of the Indenture otherwise permit payment at that time.

      As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of the Issuer or the Co-Issuer, Holders of the Notes may recover less ratably than other creditors of the Issuer. See “Risk Factors — Risks Associated with the Notes and this Offering — Your right to receive payments on the notes is subordinated to our and the guarantors’ senior debt.”

      As of November 30, 2005, the Issuer had $46.8 million aggregate principal amount of Senior Debt and $178.2 million of undrawn borrowings available under the Credit Facilities (net of $9.3 million in outstanding undrawn letters of credit).

SUBORDINATION OF GUARANTEES

      Each Guarantee will be subordinated to Guarantor Senior Debt on the same basis as the Notes are subordinated to Senior Debt.

NOTE GUARANTEES

      The obligations of the Issuer and the Co-Issuer under the Notes and the Indenture will be jointly and severally guaranteed (the “Note Guarantees”) by each Restricted Subsidiary (other than the Co-Issuer).

      As of the date of the Indenture, all of our Subsidiaries became “Restricted Subsidiaries.” Under the circumstances described below under the subheading “— Certain Covenants — Limitation on designation of unrestricted subsidiaries,” the Issuer will be permitted to designate some of its Subsidiaries (other than the Co-Issuer) as “Unrestricted Subsidiaries.” The effect of designating a Subsidiary as an “Unrestricted Subsidiary” will be that:

•  an Unrestricted Subsidiary will not be subject to many of the restrictive covenants in the Indenture;

•  a Subsidiary that has previously been a Guarantor and that is designated an Unrestricted Subsidiary will be released from its Note Guarantee and its obligations under the Indenture and the Registration Rights Agreement; and

•  the assets, income, cash flow and other financial results of an Unrestricted Subsidiary will not be consolidated with those of the Issuer for purposes of calculating compliance with the restrictive covenants contained in the Indenture.

      The obligations of each Guarantor under its Note Guarantee will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Note Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment for distribution under its Note Guarantee is entitled to a contribution from each other Guarantor in a pro rata amount based on adjusted net assets of each Guarantor.

      A Guarantor shall be released from its obligations under its Note Guarantee and its obligations under the Indenture and the Registration Rights Agreement:

•  in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Equity Interests of such Guarantor then held by the Issuer, the Co-Issuer and the Restricted Subsidiaries; provided, however, that the Net Available Proceeds of such sale or other disposition shall be applied in accordance with the applicable provisions of the Indenture, to the extent required thereby; or

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•  if such Guarantor is designated as an Unrestricted Subsidiary or otherwise ceases to be a Restricted Subsidiary, in each case in accordance with the provisions of the Indenture, upon effectiveness of such designation or when it first ceases to be a Restricted Subsidiary, respectively.

OPTIONAL REDEMPTION

      Except as set forth below, the Notes may not be redeemed prior to October 1, 2010. At any time or from time to time on or after October 1, 2010, the Issuers, at their option, may redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below, together with accrued and unpaid interest thereon, if any, to the redemption date, if redeemed during the 12-month period beginning October 1 of the years indicated:

	Optional
Year	Redemption Price
2010		104.750%
2011		103.167%
2012		101.583%
2013 and thereafter		100.000%

      At any time or from time to time prior to October 1, 2008, the Issuer, at its option, may redeem up to 35% of the aggregate principal amount of the Notes with the net cash proceeds of one or more Qualified Equity Offerings at a redemption price equal to 109.5% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest thereon, if any, to the date of redemption; provided, however, that (1) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption and (2) the redemption occurs within 90 days of the date of the closing of any such Qualified Equity Offering.

      The Issuer may acquire Notes by means other than a redemption, whether pursuant to an issuer tender offer, open market purchase or otherwise, so long as the acquisition does not otherwise violate the terms of the Indenture.

SELECTION AND NOTICE OF REDEMPTION

      In the event that less than all of the Notes are to be redeemed at any time pursuant to an optional redemption, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national security exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part. In addition, if a partial redemption is made pursuant to the provisions described in the second paragraph under “— Optional Redemption,” selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the procedures of The Depository Trust Company), unless that method is otherwise prohibited.

      Notice of redemption will be mailed by first-class mail at least 30 but not more than 60 days before the date of redemption to each Holder of Notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a satisfaction and discharge of the Indenture. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of the Note to be redeemed. A new Note in a principal amount equal to the unredeemed portion of the Note will be issued in the name of the Holder of the Note upon cancellation of the original Note. On and after the date of redemption, interest will cease to accrue on Notes or portions thereof called for redemption so long as the Issuer has deposited with the paying agent for the Notes funds in satisfaction of the redemption price (including accrued and unpaid interest on the Notes to be redeemed) pursuant to the Indenture.

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CHANGE OF CONTROL

      Upon the occurrence of any Change of Control, each Holder will have the right to require that the Issuer and the Co-Issuer purchase that Holder’s Notes for a cash price (the “Change of Control Purchase Price”) equal to 101% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase.

      Within 30 days following any Change of Control, the Issuer and the Co-Issuer will mail, or cause to be mailed, to the Holders a notice:

      (1) describing the transaction or transactions that constitute the Change of Control;

      (2) offering to purchase, pursuant to the procedures required by the Indenture and described in the notice (a “Change of Control Offer”), on a date specified in the notice (which shall be a Business Day not earlier than 30 days nor later than 60 days from the date the notice is mailed) and for the Change of Control Purchase Price, all Notes properly tendered by such Holder pursuant to such Change of Control Offer; and

      (3) describing the procedures that Holders must follow to accept the Change of Control Offer. The Change of Control Offer is required to remain open for at least 20 Business Days or for such longer period as is required by law.

      The Issuer will publicly announce the results of the Change of Control Offer on or as soon as practicable after the date of purchase.

      The agreements governing our outstanding Senior Debt currently prohibit us in certain circumstances from purchasing any Notes, and also provide that some change of control events with respect to us would constitute a default under these agreements. Any future credit agreements or other agreements relating to Senior Debt to which the Issuer and/or the Co-Issuer becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Issuer and the Co-Issuer are prohibited from purchasing Notes, the Issuer and/or the Co-Issuer could seek the consent of our lenders under the Senior Debt to the purchase of Notes or could attempt to refinance the borrowings that contain the prohibition. If the Issuer and/or the Co-Issuer do not obtain a consent or refinance the borrowings, the Issuer and the Co-Issuer will remain prohibited from purchasing Notes. In that case, our failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Senior Debt. In these circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.

      If a Change of Control Offer is made, there can be no assurance that the Issuer and the Co-Issuer will have available funds sufficient to pay for all or any of the Notes that might be delivered by Holders seeking to accept the Change of Control Offer.

      The provisions described above that require us to make a Change of Control Offer following a Change of Control will be applicable regardless of whether any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Issuer purchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

      The obligation of the Issuer and the Co-Issuer to make a Change of Control Offer will be satisfied if a third party makes the Change of Control Offer in the manner and at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Issuer and the Co-Issuer and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer.

      With respect to any disposition of assets, the phrase “all or substantially all” as used in the Indenture (including as set forth under the definition of “Change of Control” and “— Certain Covenants — Limitations on mergers, consolidations, etc.” below) varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law (which governs the

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Indenture) and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of “all or substantially all” of the assets of the Issuer, and therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders have the right to require the Issuer to purchase Notes.

      The Issuer and the Co-Issuer will comply with applicable tender offer rules, including the requirements of Rule 14e-1 under the Exchange Act and any other applicable laws and regulations in connection with the purchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the “Change of Control” provisions of the Indenture, the Issuer and the Co-Issuer shall comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the “Change of Control” provisions of the Indenture by virtue of this compliance.

CERTAIN COVENANTS

      The Indenture contains, among others, the following covenants. We are currently in compliance with all such covenants.

Limitations on additional indebtedness

      The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, incur any Indebtedness; provided, however, that the Issuer or any Guarantor may incur additional Indebtedness (including Acquired Indebtedness) if no Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of the Indebtedness and if, after giving effect thereto, either (a) the Consolidated Fixed Charge Coverage Ratio would be at least 2.00 to 1.00 or (b) the ratio of Consolidated Indebtedness to Consolidated Tangible Net Worth would be less than 3.00 to 1.00 (either (a) or (b), the “Ratio Exception”).

      Notwithstanding the above, so long as no Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of the following Indebtedness, each of the following shall be permitted (the “Permitted Indebtedness”):

      (1) Indebtedness of the Issuer, the Co-Issuer and any Restricted Subsidiary under the Credit Facilities in an aggregate amount at any time outstanding (whether incurred under the Ratio Exception or as Permitted Indebtedness) not to exceed the greater of (x) $300.0 million and (y) the amount of the Borrowing Base as of the date of such incurrence;

      (2) the Notes and the Note Guarantees issued on the Issue Date and the Exchange Notes and the Note Guarantees in respect thereof to be issued pursuant to the Registration Rights Agreement;

      (3) Indebtedness of the Issuer and the Restricted Subsidiaries to the extent outstanding on the Issue Date (other than Indebtedness referred to in clauses (1), (2) or (5), and after giving effect to the intended use of proceeds of the Notes);

      (4) Indebtedness of the Issuer and the Restricted Subsidiaries under Hedging Obligations entered into for bona fide hedging purposes of the Issuer or any Restricted Subsidiary not for the purpose of speculation; provided, however, that in the case of Hedging Obligations relating to interest rates, (a) such Hedging Obligations relate to payment obligations on Indebtedness otherwise permitted to be incurred by this covenant and (b) the notional principal amount of such Hedging Obligations at the time incurred does not exceed the principal amount of the Indebtedness to which such Hedging Obligations relate;

      (5) Indebtedness of the Issuer owed to a Restricted Subsidiary and Indebtedness of any Restricted Subsidiary owed to the Issuer or any other Restricted Subsidiary; provided, however, that (a) any Indebtedness of the Issuer owed to a Restricted Subsidiary is unsecured and subordinated, pursuant to a written agreement, to the Issuer’s Obligations, under the Notes and the Indenture and (b) upon any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or such Indebtedness

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being owed to any Person other than the Issuer or a Restricted Subsidiary, the Issuer or such Restricted Subsidiary, as applicable, shall be deemed to have incurred Indebtedness not permitted by this clause (5);

      (6) Indebtedness in respect of bid, performance or surety bonds or letters of credit issued for the account of the Issuer or any Restricted Subsidiary in the ordinary course of business, including guarantees or obligations of the Issuer or any Restricted Subsidiary with respect to letters of credit supporting such bid, performance or surety obligations (in each case other than for an obligation for money borrowed);

      (7) Purchase Money Indebtedness incurred by the Issuer or any Restricted Subsidiary, in an aggregate amount not to exceed at any time outstanding $10.0 million;

      (8) Non-Recourse Indebtedness of the Issuer or any Restricted Subsidiary incurred for the acquisition, development and/or improvement of real property and secured by Liens only on such real property;

      (9) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five Business Days of incurrence;

      (10) Indebtedness arising in connection with endorsement of instruments for deposit in the ordinary course of business;

      (11) Indebtedness owed to a seller of Developed Land under the terms of which the Issuer or such Restricted Subsidiary, as obligor, is required to make a payment upon the future sale of such Developed Land in an amount not to exceed 5% of the gross sales price or, in the case of profit sharing agreements between such seller and the Issuer or such Restricted Subsidiary, an amount that is reasonable and customary in the industry and market;

      (12) Indebtedness owing under Capitalized Lease Obligations;

      (13) Indebtedness arising under a guarantee of Indebtedness of any joint venture (provided that such guarantee shall be deemed to be an investment in such joint venture constituting a Permitted Investment or otherwise permitted by the covenant described under “— Limitations on restricted payments”);

      (14) Indebtedness arising from agreements of the Issuer or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that such Indebtedness is not reflected on the balance sheet of the Issuer or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (14));

      (15) Refinancing Indebtedness with respect to Indebtedness incurred pursuant to the Ratio Exception, clause (2) or (3) above or this clause (15); and

      (16) Indebtedness of the Issuer or any Restricted Subsidiary in an aggregate amount not to exceed $20.0 million at any time outstanding.

      For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (16) above or is entitled to be incurred pursuant to the Ratio Exception, the Issuer shall, in its sole discretion, classify or later reclassify such item of Indebtedness and may divide and classify such Indebtedness in more than one of the types of Indebtedness described, except that Indebtedness

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outstanding under the Credit Facilities on the Issue Date shall be deemed to have been incurred under clause (1) above. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms and the reclassification of preferred equity as Indebtedness due to a change in accounting principles will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. In addition, for purposes of determining any particular amount of Indebtedness under this covenant, guarantees, Liens or letter of credit obligations supporting Indebtedness otherwise included in the determination of such particular amount shall not be included so long as incurred by a Person that could have incurred such Indebtedness.

Limitations on layering indebtedness

      The Issuer and the Co-Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, incur or suffer to exist any Indebtedness that is or purports to be by its terms (or by the terms of any agreement governing such Indebtedness) senior in right of payment to the Notes or the Note Guarantee of such Restricted Subsidiary and subordinated in right of payment to any other Indebtedness of the Issuer, the Co-Issuer or of such Restricted Subsidiary, as the case may be.

      For purposes of the foregoing, no Indebtedness will be deemed to be subordinated in right of payment to any other Indebtedness of the Issuer, the Co-Issuer or any Restricted Subsidiary solely by virtue of being unsecured or secured by a junior priority lien or by virtue of the fact that the holders of such Indebtedness have entered into intercreditor agreements or other arrangements giving one or more of such holders priority over the other holders in the collateral held by them.

Limitations on restricted payments

      The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, make any Restricted Payment if at the time of such Restricted Payment:

      (1) a Default shall have occurred and be continuing or shall occur as a consequence thereof;

      (2) the Issuer cannot incur $1.00 of additional Indebtedness pursuant to the Ratio Exception; or

      (3) the amount of such Restricted Payment, when added to the aggregate amount of all other Restricted Payments made after the Issue Date (other than Restricted Payments made pursuant to clause (2), (3), (5) or (6) of the next paragraph), exceeds the sum (the “Restricted Payments Basket”) of (without duplication):

      (a) 50% of Consolidated Net Income for the period (taken as one accounting period) from June 1, 2005 to and including the last day of the fiscal quarter ended immediately prior to the date of such calculation for which consolidated financial statements are available (or, if such Consolidated Net Income shall be a deficit, minus 100% of such aggregate deficit), plus

      (b) 100% of the aggregate net cash proceeds or the Fair Market Value of any assets to be used in the business of the Issuer (other than securities) received by the Issuer either (x) as contributions to the common equity of the Issuer after the Issue Date or (y) from the issuance and sale of Qualified Equity Interests after the Issue Date, other than (A) any such proceeds which are used to redeem Notes in accordance with the second paragraph under “— Optional Redemption,” or (B) any such proceeds or assets received from a Subsidiary of the Issuer, plus

      (c) the aggregate amount by which Indebtedness (other than any Subordinated Indebtedness) incurred by the Issuer or any Restricted Subsidiary subsequent to the Issue Date is reduced on the Issuer’s balance sheet upon the conversion or exchange (other than by a Subsidiary of the Issuer) into Qualified Equity Interests (less the amount of any cash, or the fair value of assets, distributed by the Issuer or any Restricted Subsidiary upon such conversion or exchange), plus

      (d) in the case of the disposition or repayment of or return on any Investment that was treated as a Restricted Payment made after the Issue Date, an amount (to the extent not included in the computation of Consolidated Net Income) equal to the lesser of (i) 100% of the

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aggregate amount received by the Issuer or any Restricted Subsidiary in cash or other property (valued at the Fair Market Value thereof) as the return of capital with respect to such Investment and (ii) the amount of such Investment that was treated as a Restricted Payment, in either case, less the cost of the disposition of such Investment and net of taxes, plus

      (e) upon a Redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the lesser of (i) the Fair Market Value of the Issuer’s proportionate interest in such Subsidiary immediately following such Redesignation, and (ii) the aggregate amount of the Issuer’s Investments in such Subsidiary to the extent such Investments reduced the amount available for subsequent Restricted Payments under this clause (3) and were not previously repaid or otherwise reduced; plus

      (f) $5.0 million.

      The foregoing provisions will not prohibit:

      (1) the payment by the Issuer or any Restricted Subsidiary of any dividend or distribution within 60 days after the date of declaration or notice to equity holders thereof, if on the date of declaration or notice the payment would have complied with the provisions of the Indenture;

      (2) so long as no Default shall have occurred and be continuing at the time of or as a consequence of such redemption, the redemption of any Equity Interests of the Issuer or any Restricted Subsidiary in exchange for, or out of the proceeds of the substantially concurrent issuance and sale of, Qualified Equity Interests;

      (3) so long as no Default shall have occurred and be continuing at the time of or as a consequence of such redemption, the redemption of Subordinated Indebtedness of the Issuer or any Restricted Subsidiary (a) in exchange for, or out of the proceeds of the substantially concurrent issuance and sale of, Qualified Equity Interests or (b) in exchange for, or out of the proceeds of the substantially concurrent incurrence of, Refinancing Indebtedness permitted to be incurred under the “Limitations on additional indebtedness” covenant and the other terms of the Indenture;

      (4) so long as no Default shall have occurred and be continuing at the time of or as a consequence of such redemption, the redemption of Equity Interests of the Issuer held by officers, directors or employees or former officers, directors or employees (or their transferees, estates or beneficiaries under their estates), upon their death, disability, retirement, severance or termination of employment or service; provided, however, that the aggregate cash consideration paid for all such redemptions shall not exceed $2.0 million during any calendar year;

      (5) the payment of dividends, or distributions or amounts by the Issuer to its direct parents in amounts required to pay the tax obligations of any such direct parent that are solely attributable to the income of the Issuer and its Subsidiaries by virtue of the Issuer being a pass-through entity for Federal or state income tax purposes; provided, however, that (a) the amount of dividends or distributions paid pursuant to this clause (5) to enable any of the Issuer’s direct parents to pay Federal and state income taxes at any time will not exceed the amount of such Federal and state income taxes actually owing by any such direct parent at such time for the respective period (excluding any tax liability of any such direct parent not attributable to the Issuer or its Subsidiaries) (provided that the Issuer may make periodic payments based on an estimate of such tax liability with an annual reconciliation at the end of each tax year) and (b) any refunds received by or on behalf of, or any overpayment based on the annual reconciliation to, any of the Issuer’s direct parents attributable to the Issuer and its Subsidiaries shall promptly be returned by any such direct parent to the Issuer or credited against the Restricted Payments Basket as an additional distribution to the Issuer’s direct parents;

      (6) repurchases of Equity Interests deemed to occur upon the exercise of stock options if the Equity Interests represent a portion of the exercise price thereof; or

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      (7) payments made to purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness of the Issuer pursuant to provisions requiring the Issuer to offer to purchase, redeem, defease or otherwise acquire or retire for value such Subordinated Indebtedness upon the occurrence of a “change of control” as defined in the agreements or instruments governing such Subordinated Indebtedness; provided, however, that the Issuer and the Co-Issuer have made a Change of Control Offer and have purchased all Notes tendered in connection with such Change of Control Offer;

provided, however, that no issuance and sale of Qualified Equity Interests that are used to make a payment pursuant to clause (2) or (3) above shall increase the Restricted Payments Basket, except to the extent the proceeds thereof exceed the amounts used to effect the transactions described therein.

      During the fiscal year ended May 31, 2005, we distributed $33.7 million to our direct parents. Of that amount, $9.9 million exceeded the amounts required to cover our direct parents’ actual and estimated tax liability. In previous periods, distributions to our direct parents were made largely to cover their tax liabilities. Subsequent to May 31, 2005, and prior to the Issue Date, we distributed $2.1 million to our direct parents, of which $1.8 million was intended to cover their tax liabilities.

Maintenance of consolidated tangible net worth

      If the Issuer’s Consolidated Tangible Net Worth declines below $60.0 million (the “Minimum Tangible Net Worth”) at the end of any fiscal quarter, the Issuer must deliver an Officers’ Certificate to the Trustee within 55 days after the end of such fiscal quarter (110 days after the end of any fiscal year) to notify the Trustee of such decline. If, on the last day of each of any two consecutive fiscal quarters (the last day of the second fiscal quarter being referred to as a “Deficiency Date”), the Issuer’s Consolidated Tangible Net Worth is less than the Minimum Tangible Net Worth of the Issuer, then the Issuer and the Co-Issuer must make an offer (a “Net Worth Offer”) to all Holders of Notes to purchase 10% of the aggregate principal amount of the Notes (the “Net Worth Offer Amount”) at a purchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that no such Net Worth Offer shall be required if, after the Deficiency Date but prior to the date the Issuer and the Co-Issuer are required to make the Net Worth Offer, capital in cash or Cash Equivalents is contributed for Qualified Equity Interests of the Issuer sufficient to increase the Issuer’s Consolidated Tangible Net Worth after giving effect to such contribution to an amount equal to or above the Minimum Tangible Net Worth.

      The Issuer and the Co-Issuer must make the Net Worth Offer no later than 65 days after each Deficiency Date (120 days if such Deficiency Date is the last day of the Issuer’s fiscal year). The Net Worth Offer is required to remain open for a period of 20 Business Days following its commencement or for such longer period as required by law. The Issuer and the Co-Issuer are required to purchase the Net Worth Offer Amount of the Notes on a designated date no later than five Business Days after the termination of the Net Worth Offer, or if less than the Net Worth Offer Amount of Notes shall have been tendered, all Notes then tendered.

      If the aggregate principal amount of Notes tendered exceeds the Net Worth Offer Amount, the Issuer and the Co-Issuer are required to purchase the Notes tendered pro rata among the Notes tendered (with such adjustments as may be appropriate so that only Notes in denominations of $1,000 and integral multiples thereof shall be purchased).

      In no event will the failure of the Issuer’s Consolidated Tangible Net Worth to equal or exceed the Minimum Tangible Net Worth at the end of any fiscal quarter be counted toward the requirement to make more than one Net Worth Offer. The Issuer may reduce the principal amount of Notes to be purchased pursuant to the Net Worth Offer by subtracting 100% of the aggregate principal amount (excluding premium) of the Notes redeemed by the Issuer prior to the purchase (otherwise than under this provision). The Issuer, however, may not credit Notes that have been previously used as a credit against any obligation to repurchase Notes pursuant to this provision.

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      The Issuer and the Co-Issuer will comply with applicable tender offer rules, including the requirements of Rule 14e-1 under the Exchange Act and any other applicable laws and regulations in connection with the purchase of Notes pursuant to a Net Worth Offer. To the extent that the provisions of any securities laws or regulations conflict with the “Net Worth Offer” provisions of the Indenture, the Issuer shall comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the “Net Worth Offer” provisions of the Indenture by virtue of this compliance.

      The agreements governing our outstanding Senior Debt currently prohibit us in certain circumstances from purchasing any Notes. Any future credit agreements or other agreements relating to Senior Debt to which the Issuer and/or the Co-Issuer becomes a party may contain similar restrictions and provisions. If the Deficiency Date occurs at a time when the Issuer and the Co-Issuer are prohibited from purchasing Notes, the Issuer and/or the Co-Issuer could seek the consent of the lenders under our Senior Debt to the purchase of Notes or could attempt to refinance the borrowings that contain the prohibition. If the Issuer and/or the Co-Issuer do not obtain a consent or refinance the borrowings, the Issuer and the Co-Issuer will remain prohibited from purchasing Notes. In that case, our failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Senior Debt. In these circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.

      If a Net Worth Offer is made, there can be no assurance that the Issuer and the Co-Issuer will have available funds sufficient to pay for all or any of the Notes that might be delivered by Holders seeking to accept the Net Worth Offer.

      As of November 30, 2005, the Issuer’s Consolidated Tangible Net Worth was $155.2 million.

Limitations on dividend and other restrictions affecting restricted subsidiaries

      The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to:

      (1) pay dividends or make any other distributions on or in respect of its Equity Interests;

      (2) make loans or advances or pay any Indebtedness or other obligation owed to the Issuer or any other Restricted Subsidiary; or

      (3) transfer any of its assets to the Issuer or any other Restricted Subsidiary;

except for:

      (a) encumbrances or restrictions existing under or by reason of applicable law;

      (b) encumbrances or restrictions existing under the Indenture, the Notes and the Note Guarantees;

      (c) non-assignment provisions of any contract or any lease entered into in the ordinary course of business;

      (d) encumbrances or restrictions existing under agreements existing on the date of the Indenture (including, without limitation, the Credit Facilities) as in effect on that date;

      (e) restrictions on the transfer of assets subject to any Lien permitted under the Indenture imposed by the holder of such Lien;

      (f) restrictions on the transfer of assets imposed under any agreement to sell such assets permitted under the Indenture to any Person pending the closing of such sale;

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      (g) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the assets of any Person, other than the Person or the assets of the Person so acquired;

      (h) any other agreement governing Indebtedness entered into after the Issue Date that contains encumbrances and restrictions that are not materially more restrictive with respect to any Restricted Subsidiary than those in effect on the Issue Date with respect to that Restricted Subsidiary pursuant to agreements in effect on the Issue Date;

      (i) customary provisions in partnership agreements, limited liability company organizational governance documents, joint venture agreements and other similar agreements entered into in the ordinary course of business that restrict the transfer of ownership interests in such partnership, limited liability company, joint venture or similar Person;

      (j) Purchase Money Indebtedness or Capitalized Lease Obligations incurred in compliance with the covenant described under “— Limitations on additional indebtedness” that impose restrictions of the nature described in clause (c) above on the assets acquired; and

      (k) any encumbrances or restrictions imposed by any amendments or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (j) above; provided, however, that such amendments or refinancings are, in the good faith judgment of the Issuer’s Board of Directors, no more materially restrictive with respect to such encumbrances and restrictions than those prior to such amendment or refinancing.

Limitations on transactions with affiliates

      The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, in one transaction or a series of related transactions, sell, lease, transfer or otherwise dispose of any of its assets to, or purchase any assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (an “Affiliate Transaction”), unless:

      (1) such Affiliate Transaction is on terms that are no less favorable to the Issuer or the relevant Restricted Subsidiary than those that may have been obtained in a comparable transaction at such time on an arm’s-length basis by the Issuer or such Restricted Subsidiary from a Person that is not an Affiliate of the Issuer or such Restricted Subsidiary; and

      (2) the Issuer delivers to the Trustee:

      (a) with respect to any Affiliate Transaction involving aggregate value in excess of $5.0 million, an Officers’ Certificate certifying that such Affiliate Transaction complies with clause (1) above and either (x) a Secretary’s Certificate which sets forth and authenticates a resolution that has been adopted by a majority of the disinterested members of the Board of Directors of the Issuer approving such Affiliate Transaction or (y) a Secretary’s Certificate which sets forth and authenticates a resolution that has been adopted by the Board of Directors of the Issuer approving such Affiliate Transaction together with the written opinion or appraisal described in clause (b) below; and

      (b) with respect to any Affiliate Transaction involving aggregate value of $10.0 million or more, the certificates described in the preceding clause (a) and either (x) a written opinion as to the fairness of such Affiliate Transaction to the Issuer or such Restricted Subsidiary from a financial point of view or (y) a written appraisal supporting the value of such Affiliate Transaction, in either case, issued by an Independent Financial Advisor.

      The foregoing restrictions shall not apply to:

      (1) transactions exclusively between or among (a) the Issuer and one or more Restricted Subsidiaries or (b) Restricted Subsidiaries; provided, however, in each case, that no Affiliate of the

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Issuer (other than another Restricted Subsidiary) owns Equity Interests of any such Restricted Subsidiary;

      (2) reasonable director, officer, employee and consultant compensation (including bonuses) and other benefits (including retirement, health, stock and other benefit plans) and indemnification arrangements;

      (3) loans and advances permitted by clause (3) of the definition of “Permitted Investments”;

      (4) Restricted Payments which are made in accordance with the covenant described under “— Limitations on restricted payments”;

      (5) any agreement as in effect as of the Issue Date and disclosed in this prospectus or any extension, amendment or modification thereto (so long as any such extension, amendment or modification satisfies the requirements set forth in clause (1) of the first paragraph of this covenant) or any transaction contemplated by such agreement;

      (6) any transaction with a joint venture or similar entity which would constitute an Affiliate Transaction solely because the Issuer or a Restricted Subsidiary owns an equity interest in or otherwise controls such joint venture or similar entity; provided, however, that no Affiliate of the Issuer or any of its Subsidiaries other than the Issuer or a Restricted Subsidiary shall have a beneficial interest in such joint venture or similar entity; or

      (7) sales of Qualified Equity Interests for cash by the Issuer to an Affiliate.

Limitations on liens

      The Issuer shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or permit or suffer to exist any Lien (other than Permitted Liens) of any nature whatsoever against any assets of the Issuer or any Restricted Subsidiary (including Equity Interests of a Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, which Lien secures Indebtedness or trade payables or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom, unless contemporaneously therewith:

      (1) in the case of any Lien securing an obligation that ranks pari passu with the Notes or a Note Guarantee, effective provision is made to secure the Notes or such Note Guarantee, as the case may be, at least equally and ratably with or prior to such obligation with a Lien on the same collateral; and

      (2) in the case of any Lien securing an obligation that is subordinated in right of payment to the Notes or a Note Guarantee, effective provision is made to secure the Notes or such Note Guarantee, as the case may be, with a Lien on the same collateral that is prior to the Lien securing such subordinated obligation,

in each case, for so long as such obligation is secured by such Lien.

Limitations on asset sales

      The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale unless:

      (1) the Issuer or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets included in such Asset Sale; and

      (2) at least 75% of the total consideration received in such Asset Sale or series of related Asset Sales consists of cash or Cash Equivalents.

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      For purposes of clause (2) of the preceding paragraph, the following shall be deemed to be cash:

      (a) the amount (without duplication) of any Indebtedness (other than Subordinated Indebtedness) of the Issuer or such Restricted Subsidiary that is expressly assumed by the transferee in such Asset Sale and with respect to which the Issuer or such Restricted Subsidiary, as the case may be, is unconditionally released by the holder of such Indebtedness,

      (b) the amount of any obligations received from such transferee that are within 30 days converted by the Issuer or such Restricted Subsidiary to cash (to the extent of the cash actually so received), and

      (c) the Fair Market Value of any assets (other than securities, unless such securities represent Equity Interests in an entity engaged in the business of the Issuer, such entity becomes a Restricted Subsidiary and the Issuer or a Restricted Subsidiary acquires voting and management control of such entity) received by the Issuer or any Restricted Subsidiary to be used by it in the business of the Issuer or such Restricted Subsidiary.

      If at any time any non-cash consideration received by the Issuer or any Restricted Subsidiary, as the case may be, in connection with any Asset Sale is repaid or converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then the date of such repayment, conversion or disposition shall be deemed to constitute the date of an Asset Sale hereunder and the Net Available Proceeds thereof shall be applied in accordance with this covenant.

      If the Issuer or any Restricted Subsidiary engages in an Asset Sale, the Issuer or such Restricted Subsidiary shall, no later than 365 days following the consummation thereof, apply all or any of the Net Available Proceeds therefrom to:

      (1) repay any Senior Indebtedness; and/or

      (2) invest all or any part of the Net Available Proceeds thereof in the purchase of assets (other than securities, unless such securities represent Equity Interests in an entity engaged in the business of the Issuer or such Restricted Subsidiary, such entity becomes a Restricted Subsidiary and the Issuer or a Restricted Subsidiary acquires voting and management control of such entity) to be used by the Issuer or any Restricted Subsidiary in the business of the Issuer or such Restricted Subsidiary; and/or

      (3) make a Net Proceeds Offer (and redeem Pari Passu Indebtedness) in accordance with the procedures described below and in the Indenture.

      The amount of Net Available Proceeds not applied or invested as provided in this paragraph will constitute “Excess Proceeds.”

      When the aggregate amount of Excess Proceeds equals or exceeds $10.0 million, the Issuer and the Co-Issuer will be required to make an offer to purchase from all Holders and, if applicable, redeem (or make an offer to do so) any Pari Passu Indebtedness of the Issuer or the Co-Issuer the provisions of which require the Issuer or the Co-Issuer to redeem such Indebtedness with the proceeds from any Asset Sales (or offer to do so), in an aggregate principal amount of Notes and such Pari Passu Indebtedness equal to the amount of such Excess Proceeds as follows:

      (1) the Issuer and the Co-Issuer will (a) make an offer to purchase (a “Net Proceeds Offer”) to all Holders in accordance with the procedures set forth in the Indenture, and (b) redeem (or make an offer to do so) any such other Pari Passu Indebtedness, pro rata in proportion to the respective principal amounts of the Notes and such other Indebtedness required to be redeemed, the maximum principal amount of Notes and Pari Passu Indebtedness that may be redeemed out of the amount (the “Payment Amount”) of such Excess Proceeds;

      (2) the offer price for the Notes will be payable in cash in an amount equal to 100% of the principal amount of the Notes tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid interest thereon, if any, to the date such Net Proceeds Offer is consummated (the “Offered Price”),

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in accordance with the procedures set forth in the Indenture and the redemption price for such Pari Passu Indebtedness (the “Pari Passu Indebtedness Price”) shall be as set forth in the related documentation governing such Indebtedness;

      (3) if the aggregate Offered Price of Notes validly tendered and not withdrawn by Holders thereof exceeds the pro rata portion of the Payment Amount allocable to the Notes, Notes to be purchased will be selected on a pro rata basis; and

      (4) upon completion of such Net Proceeds Offer in accordance with the foregoing provisions, the amount of Excess Proceeds with respect to which such Net Proceeds Offer was made shall be deemed to be zero.

      To the extent that the sum of the aggregate Offered Price of Notes tendered pursuant to a Net Proceeds Offer and the aggregate Pari Passu Indebtedness Price paid to the holders of such Pari Passu Indebtedness is less than the Payment Amount relating thereto (such shortfall constituting a “Net Proceeds Deficiency”), the Issuer may use the Net Proceeds Deficiency, or a portion thereof, for general corporate purposes, subject to the provisions of the Indenture.

      In the event of the transfer of substantially all (but not all) of the assets of the Issuer and the Restricted Subsidiaries as an entirety to a Person in a transaction covered by and effected in accordance with the covenant described under “— Limitations on mergers, consolidations, etc.,” the successor shall be deemed to have sold for cash at Fair Market Value the assets of the Issuer and the Restricted Subsidiaries not so transferred for purposes of this covenant, and the successor shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale (with such Fair Market Value being deemed to be Net Available Proceeds for such purpose).

      The Issuer and the Co-Issuer will comply with applicable tender offer rules, including the requirements of Rule 14e-1 under the Exchange Act and any other applicable laws and regulations in connection with the purchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the “— Limitations on asset sales” provisions of the Indenture, the Issuer and the Co-Issuer shall comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the “— Limitations on asset sales” provisions of the Indenture by virtue of this compliance.

Limitations on designation of unrestricted subsidiaries

      The Issuer may designate any Subsidiary (including any newly formed or newly acquired Subsidiary) of the Issuer (other than the Co-Issuer) as an “Unrestricted Subsidiary” under the Indenture (a “Designation”) only if:

      (1) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; and

      (2) the Issuer would be permitted to make, at the time of such Designation, (a) a Permitted Investment or (b) an Investment pursuant to the first paragraph of “— Limitations on restricted payments” above, in either case, in an amount (the “Designation Amount”) equal to the Fair Market Value of the Issuer’s proportionate interest in such Subsidiary on such date.

      No Subsidiary shall be Designated as an “Unrestricted Subsidiary” unless such Subsidiary:

      (1) has no Indebtedness other than Permitted Unrestricted Subsidiary Debt;

      (2) is not party to any agreement, contract, arrangement or understanding with the Issuer or any Restricted Subsidiary unless the terms of the agreement, contract, arrangement or understanding are no less favorable to the Issuer or the Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Issuer or such Restricted Subsidiary;

      (3) is a Person with respect to which neither the Issuer nor any Restricted Subsidiary has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or

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preserve the Person’s financial condition or to cause the Person to achieve any specified levels of operating results; and

      (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Issuer or any Restricted Subsidiary, except for any guarantee given solely to support the pledge by the Issuer or any Restricted Subsidiary of the Equity Interests of such Unrestricted Subsidiary, which guarantee is not recourse to the Issuer or any Restricted Subsidiary, and except to the extent the amount thereof constitutes a Restricted Payment permitted pursuant to the covenant described under “— Limitations on restricted payments.”

      If, at any time, any Unrestricted Subsidiary fails to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of the Subsidiary, Liens on assets and Investments of such Subsidiary shall be deemed to be incurred or made by a Restricted Subsidiary as of the date and, if the Indebtedness is not permitted to be incurred or made under the covenant described under “— Limitations on additional indebtedness” or the Lien is not permitted under the covenant described under “— Limitations on liens” or the Investment is not permitted to be made under the covenant described under “— Limitation on restricted payments” the Issuer shall be in default of the applicable covenant. The Issuer may not designate the Co-Issuer as an Unrestricted Subsidiary.

      The Issuer may redesignate an Unrestricted Subsidiary as a Restricted Subsidiary (a “Redesignation”) only if:

      (1) no Default shall have occurred and be continuing at the time of and after giving effect to such Redesignation; and

      (2) all Liens, Indebtedness and Investments of such Unrestricted Subsidiary outstanding immediately following such Redesignation would, if incurred or made at such time, have been permitted to be incurred or made for all purposes of the Indenture.

      All Designations and Redesignations must be evidenced by resolutions of the Board of Directors of the Issuer, delivered to the Trustee certifying compliance with the foregoing provisions.

Limitations on mergers, consolidations, etc.

      The Issuer will not, directly or indirectly, in a single transaction or a series of related transactions, (a) consolidate or merge with or into another Person (other than a merger that satisfies the requirements of clause (1) below with a Wholly Owned Restricted Subsidiary solely for the purpose of changing the Issuer’s jurisdiction of formation to another State of the United States), or sell, lease, transfer, convey or otherwise dispose of or assign all or substantially all of the assets of the Issuer or the Issuer and the Restricted Subsidiaries (taken as a whole) or (b) adopt a Plan of Liquidation unless, in either case:

      (1) either:

      (a) the Issuer will be the surviving or continuing Person; or

      (b) the Person formed by or surviving such consolidation or merger or to which such sale, lease, conveyance or other disposition shall be made (or, in the case of a Plan of Liquidation, any Person to which assets are transferred) (collectively, the “Successor”) is a corporation, limited liability company or limited partnership organized and existing under the laws of any State of the United States of America or the District of Columbia, and the Successor expressly assumes, by supplemental indenture in form and substance satisfactory to the Trustee, all of the obligations of the Issuer under the Notes, the Indenture and the Registration Rights Agreement; provided, however, that at any time the Successor is a limited liability company or a limited partnership, there shall be a co-issuer of the Notes that is a corporation;

      (2) immediately prior to and immediately after giving effect to such transaction and the assumption of the obligations as set forth in clause (1)(b) above and the incurrence of any

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Indebtedness to be incurred in connection therewith, and the use of any net proceeds therefrom on a pro forma basis, no Default shall have occurred and be continuing; and

      (3) immediately after giving effect to such transaction and the assumption of the obligations set forth in clause (1)(b) above and the incurrence of any Indebtedness to be incurred in connection therewith, and the use of any net proceeds therefrom on a pro forma basis, the Issuer or the Successor, as the case may be, could incur $1.00 of additional Indebtedness pursuant to the Ratio Exception.

      For purposes of this covenant, any Indebtedness of the Successor which was not Indebtedness of the Issuer immediately prior to the transaction shall be deemed to have been incurred in connection with such transaction.

      The Co-Issuer will not, directly or indirectly, in a single transaction or a series of related transactions, (a) consolidate or merge with or into another Person, or sell, lease, transfer, convey or otherwise dispose of or assign all or substantially all of the assets of the Co-Issuer or (b) adopt a Plan of Liquidation unless, in either case:

      (1) either:

      (a) the Co-Issuer will be the surviving or continuing Person; or

      (b) the Person formed by or surviving such consolidation or merger or to which such sale, lease, conveyance or other disposition shall be made (or, in the case of a Plan of Liquidation, any Person to which assets are transferred) (collectively, the “Co-Issuer Successor”) is a corporation organized and existing under the laws of any State of the United States of America or the District of Columbia, and the Co-Issuer Successor expressly assumes, by supplemental indenture in form and substance satisfactory to the Trustee, all of the obligations of the Co-Issuer under the Notes, the Indenture and the Registration Rights Agreement; and

      (2) immediately prior to and immediately after giving effect to such transaction and the assumption of the obligations as set forth in clause (1)(b) above, no Default shall have occurred and be continuing.

      Except as provided in the fourth paragraph under the caption “— Note Guarantees,” no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, whether or not affiliated with such Guarantor, unless:

      (1) either:

      (a) such Guarantor will be the surviving or continuing Person; or

      (b) the Person formed by or surviving any such consolidation or merger is another Guarantor or assumes, by supplemental indenture in form and substance satisfactory to the Trustee, all of the obligations of such Guarantor under the Note Guarantee of such Guarantor, the Indenture and the Registration Rights Agreement; and

      (2) immediately after giving effect to such transaction and the assumption of the obligations as set forth in clause (1)(b) above, no Default shall have occurred and be continuing.

      For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the assets of one or more Restricted Subsidiaries, the Equity Interests of which constitute all or substantially all of the assets of the Issuer, will be deemed to be the transfer of all or substantially all of the assets of the Issuer.

      Upon any consolidation, combination or merger of the Issuer, the Co-Issuer or a Guarantor, or any sale, lease, transfer, conveyance or other disposition of all or substantially all of the assets of the Issuer or the Co-Issuer in accordance with the foregoing, in which the Issuer, the Co-Issuer or such Guarantor is not the continuing obligor under the Notes or its Note Guarantee, as the case may be, the surviving entity formed by such consolidation or into which the Issuer, the Co-Issuer or such Guarantor is merged or the

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Person to which the sale, lease, transfer, conveyance or other disposition is made will succeed to, and be substituted for, and may exercise every right and power of, the Issuer, the Co-Issuer or such Guarantor under the Indenture, the Notes and the Note Guarantees with the same effect as if such surviving entity had been named therein as the Issuer, the Co-Issuer or such Guarantor and, except in the case of a sale, lease, transfer, conveyance or other disposition, the Issuer, the Co-Issuer or such Guarantor, as the case may be, will be released from the obligation to pay the principal of and interest on the Notes or in respect of its Note Guarantee, as the case may be, and all of the Issuer’s, the Co-Issuer’s or such Guarantor’s other obligations and covenants under the Notes, the Indenture and its Note Guarantee, if applicable.

      Notwithstanding the foregoing, any Restricted Subsidiary (other than the Co-Issuer) may merge into the Issuer or another Restricted Subsidiary.

Additional note guarantees

      If, after the Issue Date, (a) the Issuer or any Restricted Subsidiary shall acquire or create another Subsidiary (other than a Subsidiary that has been designated an Unrestricted Subsidiary) or (b) any Unrestricted Subsidiary is redesignated a Restricted Subsidiary, then, in each such case, the Issuer shall cause such Restricted Subsidiary to:

      (1) execute and deliver to the Trustee (a) a supplemental indenture in form and substance satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Issuer’s obligations under the Notes and the Indenture and (b) a notation of guarantee in respect of its Note Guarantee; and

      (2) deliver to the Trustee one or more opinions of counsel that such supplemental indenture (a) has been duly authorized, executed and delivered by such Restricted Subsidiary and (b) constitutes a valid and legally binding obligation of such Restricted Subsidiary in accordance with its terms;

provided that in respect of any newly created Restricted Subsidiary, the Issuer shall deliver the executed documentation set forth in clauses (1) and (2) above with respect to such newly created Restricted Subsidiary(ies) within ten (10) days of the end of the fiscal quarter in which such Restricted Subsidiary was created.

Limitation on activities of the co-issuer

      The Co-Issuer may not hold any material assets, become liable for any material obligations, engage in any trade or business, or conduct any business activity, other than (1) the issuance of its Equity Interests to the Issuer or any Wholly Owned Restricted Subsidiary of the Issuer, (2) the incurrence of Indebtedness as a co-obligor or guarantor, as the case may be, of the Notes, the Credit Facilities and any other Indebtedness that is permitted to be incurred by the Issuer under the covenant described under “— Limitations on additional indebtedness”; provided, however, that the net proceeds of such Indebtedness are not retained by the Co-Issuer, and (3) activities incidental thereto. Neither the Issuer nor any Restricted Subsidiary shall engage in any transactions with the Co-Issuer in violation of the immediately preceding sentence.

Reports

      Whether or not required by the SEC, so long as any Notes are outstanding, the Issuer will furnish to the Holders of Notes, or file electronically with the SEC through the SEC’s Electronic Data Gathering, Analysis and Retrieval System (or any successor system), within the time periods that would be applicable to the Issuer if it were subject to Section 13(a) or 15(d) of the Exchange Act:

      (1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Issuer were required to file these Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of

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Operations” and, with respect to the annual information only, a report on the annual financial statements by the Issuer’s certified independent accountants; and

      (2) all current reports that would be required to be filed with the SEC on Form 8-K if the Issuer were required to file these reports.

      In addition, whether or not required by the SEC, after the consummation of the exchange offer, the Issuer will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods that would be applicable to the Issuer if it were subject to Section 13(a) or 15(d) of the Exchange Act (unless the SEC will not accept the filing) and make the information available to securities analysts and prospective investors upon request. The Issuer, the Co-Issuer and the Guarantors have agreed that, for so long as any Notes remain outstanding, the Issuer will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

Events of default

      Each of the following is an “Event of Default”:

      (1) failure by the Issuer and the Co-Issuer to pay interest on any of the Notes when it becomes due and payable and the continuance of any such failure for 30 days (whether or not such payment is prohibited by the subordination provisions of the Indenture);

      (2) failure by the Issuer and the Co-Issuer to pay the principal on any of the Notes when it becomes due and payable, whether at stated maturity, upon redemption, upon purchase, upon acceleration or otherwise (whether or not such payment is prohibited by the subordination provisions of the Indenture);

      (3) failure by the Issuer to comply with any of its agreements or covenants described above under “— Certain Covenants — Limitations on mergers, consolidations, etc.,” or in respect of its obligations to make a Change of Control Offer as described above under “— Change of Control” (whether or not such payment is prohibited by the subordination provisions of the Indenture);

      (4) failure by the Issuer to comply with any other agreement or covenant in the Indenture and continuance of this failure for 30 days after notice of the failure has been given to the Issuer by the Trustee or by the Holders of at least 25% of the aggregate principal amount of the Notes then outstanding;

      (5) default under any mortgage, indenture or other instrument or agreement under which there may be issued or by which there may be secured or evidenced Indebtedness (other than Non-Recourse Indebtedness) of the Issuer or any Restricted Subsidiary, whether such Indebtedness now exists or is incurred after the Issue Date, which default:

      (a) is caused by a failure to pay when due principal on such Indebtedness within the applicable express grace period,

      (b) results in the acceleration of such Indebtedness prior to its express final maturity or

      (c) results in the commencement of judicial proceedings to foreclose upon, or to exercise remedies under applicable law or applicable security documents to take ownership of, the assets securing such Indebtedness, and

in each case, the principal amount of such Indebtedness, together with any other Indebtedness with respect to which an event described in clause (a), (b) or (c) has occurred and is continuing, aggregates $10.0 million or more;

      (6) one or more judgments or orders that exceed $10.0 million in the aggregate (net of amounts covered by insurance or bonded) for the payment of money have been entered by a court or courts of

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competent jurisdiction against the Issuer or any Restricted Subsidiary and such judgment or judgments have not been satisfied, stayed, annulled or rescinded within 60 days of being entered;

      (7) the Issuer, the Co-Issuer or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

      (a) commences a voluntary case,

      (b) consents to the entry of an order for relief against it in an involuntary case,

      (c) consents to the appointment of a Custodian of it or for all or substantially all of its assets, or

      (d) makes a general assignment for the benefit of its creditors;

      (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

      (a) is for relief against the Issuer, the Co-Issuer or any Significant Subsidiary as debtor in an involuntary case,

      (b) appoints a Custodian of the Issuer, the Co-Issuer or any Significant Subsidiary or a Custodian for all or substantially all of the assets of the Issuer, the Co-Issuer or any Significant Subsidiary, or

      (c) orders the liquidation of the Issuer, the Co-Issuer or any Significant Subsidiary,

and the order or decree remains unstayed and in effect for 60 days; or

      (9) any Note Guarantee of any Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of such Note Guarantee and the Indenture) or is declared null and void and unenforceable or found to be invalid or any Guarantor denies its liability under its Note Guarantee (other than by reason of release of a Guarantor from its Note Guarantee in accordance with the terms of the Indenture and the Note Guarantee).

      If an Event of Default (other than an Event of Default specified in clause (7) or (8) above with respect to the Issuer), shall have occurred and be continuing under the Indenture, the Trustee, by written notice to the Issuer, or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding by written notice to the Issuer and the Trustee, may declare all amounts owing under the Notes to be due and payable immediately. Upon such declaration of acceleration, the aggregate principal of and accrued and unpaid interest on the outstanding Notes shall immediately become due and payable; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of such outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal and interest, have been cured or waived as provided in the Indenture. If an Event of Default specified in clause (7) or (8) with respect to the Issuer occurs, all outstanding Notes shall become due and payable without any further action or notice.

      The Trustee shall, within 30 days after the occurrence of any Default with respect to the Notes, give the Holders notice of all uncured Defaults thereunder known to it; provided, however, that, except in the case of an Event of Default in payment with respect to the Notes or a Default in complying with “— Certain Covenants — Limitations on mergers, consolidations, etc.,” the Trustee shall be protected in withholding such notice if and so long as a committee of its trust officers in good faith determines that the withholding of such notice is in the interest of the Holders.

      No Holder will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless the Trustee:

      (1) has failed to act for a period of 60 days after receiving written notice of a continuing Event of Default by such Holder and a request to act by Holders of at least 25% in aggregate principal amount of Notes outstanding;

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      (2) has been offered indemnity satisfactory to it in its reasonable judgment; and

      (3) has not received from the Holders of a majority in aggregate principal amount of the outstanding Notes a direction inconsistent with such request.

      However, such limitations do not apply to a suit instituted by a Holder of any Note for enforcement of payment of the principal of or interest on such Note on or after the due date therefor (after giving effect to the grace period specified in clause (1) of the first paragraph of this “— Events of default” section).

      The Issuer is required to deliver to the Trustee annually a statement regarding compliance with the Indenture and, within five Business Days of any Officer of the Issuer becoming aware of any Default, a statement specifying such Default and what action the Issuer is taking or proposes to take with respect thereto.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

      The Issuer may, at its option and at any time, elect to have its obligations and the obligations of the Co-Issuer and the Guarantors discharged with respect to the outstanding Notes (“Legal Defeasance”). Legal Defeasance means that the Issuer, the Co-Issuer and the Guarantors shall be deemed to have paid and discharged the entire indebtedness represented by the Notes and the Note Guarantees, and the Indenture shall cease to be of further effect as to all outstanding Notes and Note Guarantees, except as to

      (1) rights of Holders to receive payments in respect of the principal of and interest on the Notes when such payments are due from the trust funds referred to below,

      (2) the obligations of the Issuer and the Co-Issuer with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or agency for payment and money for security payments held in trust,

      (3) the rights, powers, trust, duties, and immunities of the Trustee, and the Issuer’s obligation in connection therewith, and

      (4) the Legal Defeasance provisions of the Indenture.

      In addition, the Issuer may, at its option and at any time, elect to have its obligations and the obligations of the Co-Issuer and the Guarantors released with respect to most of the covenants under the Indenture, except as described otherwise in the Indenture (“Covenant Defeasance”), and thereafter any omission to comply with such obligations shall not constitute a Default. In the event Covenant Defeasance occurs, certain Events of Default (not including non-payment and, solely for a period of 91 days following the deposit referred to in clause (1) of the next paragraph, bankruptcy, receivership, rehabilitation and insolvency events) will no longer apply. Covenant Defeasance will not be effective until such bankruptcy, receivership, rehabilitation and insolvency events no longer apply. The Issuer may exercise its Legal Defeasance option regardless of whether it previously exercised Covenant Defeasance.

      In order to exercise either Legal Defeasance or Covenant Defeasance:

      (1) the Issuer must irrevocably deposit with the Trustee, as trust funds, in trust solely for the benefit of the Holders, U.S. legal tender, U.S. Government Obligations or a combination thereof, in such amounts as will be sufficient (without consideration of any reinvestment of interest) in the opinion of a nationally recognized firm of independent public accountants selected by the Issuer, to pay the principal of and interest on the Notes on the stated date for payment or on the redemption date of the principal or installment of principal of or interest on the Notes;

      (2) in the case of Legal Defeasance, the Issuer shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that:

      (a) the Issuer has received from, or there has been published by the Internal Revenue Service, a ruling, or

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      (b) since the date of the Indenture, there has been a change in the applicable U.S. federal income tax law,

in either case to the effect that, and based thereon this opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

      (3) in the case of Covenant Defeasance, the Issuer shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the Covenant Defeasance had not occurred;

      (4) no Default shall have occurred and be continuing on the date of such deposit (other than a Default resulting from the borrowing of funds to be applied to such deposit);

      (5) the Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a Default under the Indenture or a default under any other material agreement or instrument to which the Issuer or any of its Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is bound (other than any such Default or default resulting solely from the borrowing of funds to be applied to such deposit);

      (6) the Issuer shall have delivered to the Trustee an Officers’ Certificate stating that the deposit was not made by it with the intent of preferring the Holders over any other of its creditors or with the intent of defeating, hindering, delaying or defrauding any other of its creditors or others; and

      (7) the Issuer shall have delivered to the Trustee an Officers’ Certificate and an opinion of counsel, each stating that the conditions provided for in, in the case of the Officers’ Certificate, clauses (1) through (6) and, in the case of the opinion of counsel, clauses (2) and/or (3) and (5) of this paragraph have been complied with.

      If the funds deposited with the Trustee to effect Covenant Defeasance are insufficient to pay the principal of and interest on the Notes when due, then our obligations and the obligations of Guarantors under the Indenture will be revived and no such defeasance will be deemed to have occurred.

SATISFACTION AND DISCHARGE

      The Indenture will be discharged and will cease to be of further effect (except as to rights of registration of transfer or exchange of Notes which shall survive until all Notes have been canceled) as to all outstanding Notes when either

      (1) all the Notes that have been authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from this trust) have been delivered to the Trustee for cancellation; or

      (2) (a) all Notes not delivered to the Trustee for cancellation otherwise (i) have become due and payable or (ii) have been called for redemption pursuant to the provisions described under “— Optional Redemption,” and, in any case, the Issuer has irrevocably deposited or caused to be deposited with the Trustee trust funds, in trust, solely for the benefit of the Holders, U.S. legal tender, U.S. Government Obligations or a combination thereof, in such amounts as will be sufficient (without consideration of any reinvestment of interest) to pay and discharge the entire Indebtedness (including all principal and accrued interest) on the Notes not theretofore delivered to the Trustee for cancellation, (b) the Issuer and the Co-Issuer have paid all sums payable by them under the Indenture, and (c) the Issuer and the Co-Issuer have delivered irrevocable instructions to the Trustee

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to apply the deposited money toward the payment of the Notes at maturity or on the date of redemption, as the case may be.

      In addition, the Issuer must deliver an Officers’ Certificate and an opinion of counsel stating that all conditions precedent to satisfaction and discharge have been complied with.

TRANSFER AND EXCHANGE

      A Holder will be able to register the transfer of or exchange Notes only in accordance with the provisions of the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. Without the prior consent of the Issuer, the Registrar is not required (1) to register the transfer of or exchange any Note selected for redemption, (2) to register the transfer of or exchange any Note for a period of 15 days before a selection of Notes to be redeemed or (3) to register the transfer or exchange of a Note between a record date and the next succeeding interest payment date.

      The Notes will be issued in registered form and the registered Holder will be treated as the owner of such Note for all purposes.

AMENDMENT, SUPPLEMENT AND WAIVER

      Subject to certain exceptions, the Indenture or the Notes may be amended with the consent (which may include consents obtained in connection with a tender offer or exchange offer for Notes) of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing Default under, or compliance with any provision of, the Indenture may be waived (other than any continuing Default in the payment of the principal or interest on the Notes) with the consent (which may include consents obtained in connection with a tender offer or exchange offer for Notes) of the Holders of a majority in principal amount of the Notes then outstanding; provided, however, that:

      (a) no such amendment may, without the consent of the Holders of two-thirds in aggregate principal amount of Notes then outstanding, amend the obligation of the Issuer and the Co-Issuer under the heading “— Change of Control” or the related definitions that could adversely affect the rights of any Holder; and

      (b) without the consent of each Holder affected, no amendment or waiver may:

      (1) reduce, or change the maturity or the principal of any Note;

      (2) reduce the rate of or extend the time for payment of interest on the Notes;

      (3) reduce any premium payable pursuant to the optional redemption provisions of the Notes, change the date on which any Notes are subject to optional redemption or otherwise alter the provisions with respect to the optional redemption of the Notes;

      (4) make any Note payable in money or currency other than that stated in the Notes;

      (5) modify or change any provision of the Indenture or the related definitions affecting the subordination of the Notes or any Note Guarantee in a manner that adversely affects the rights of the Holders;

      (6) reduce the principal amount of Notes whose Holders must consent to an amendment or waiver to the Indenture or the Notes;

      (7) waive a Default in the payment of principal of or premium or interest on any Notes (except a rescission of acceleration of the Notes by the Holders thereof as provided in the Indenture and a waiver of the payment default that resulted from such acceleration);

      (8) impair the rights of Holders to receive payments of principal of or interest on the Notes on or after the due date therefor or to institute suit for the enforcement of any payment on the Notes;

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      (9) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except as permitted by the Indenture; or

      (10) make any change in these amendment and waiver provisions.

      Notwithstanding the foregoing, the Issuer, the Co-Issuer and the Trustee may amend the Indenture, the Note Guarantees or the Notes without the consent of any Holder, to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Issuer’s, the Co-Issuer’s or a Guarantor’s obligations to the Holders in the case of a merger or consolidation or sale of all or substantially all of the assets in accordance with “— Certain Covenants — Limitation on mergers, consolidations, etc.,” to release any Guarantor from any of its obligations under its Note Guarantee or the Indenture (to the extent permitted by the Indenture), to make any change that does not materially adversely affect the rights of any Holder or, in the case of the Indenture, to maintain the qualification of the Indenture under the Trust Indenture Act.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

      No director, manager, officer, employee, incorporator, stockholder, or member of the Issuer, the Co-Issuer, or any Guarantor will have any liability for any obligations of the Issuer or the Co-Issuer under the Notes or the Indenture or of any Guarantor under its Note Guarantee or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes and the Note Guarantees.

CONCERNING THE TRUSTEE

      U.S. Bank National Association is the Trustee under the Indenture and has been appointed by the Issuer as Registrar and Paying Agent with regard to the Notes. The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Issuer, to obtain payment of claims in certain cases, or to realize on certain assets received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Indenture), it must eliminate such conflict within 90 days, apply to the SEC for permission to continue (if the Indenture has been qualified under the Trust Indenture Act) or resign.

      The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that, in case an Event of Default occurs and is not cured, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in similar circumstances in the conduct of his or her own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to the Trustee.

GOVERNING LAW

      The Indenture, the Notes and the Note Guarantees are governed by, and construed in accordance with, the laws of the State of New York.

CERTAIN DEFINITIONS

      Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms.

      “Acquired Indebtedness” means (1) with respect to any Person that becomes a Restricted Subsidiary after the Issue Date, Indebtedness of such Person and its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary that was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary and (2) with respect to the Issuer or any Restricted Subsidiary,

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any Indebtedness of a Person (other than the Issuer or a Restricted Subsidiary) existing at the time such Person is merged with or into the Issuer or a Restricted Subsidiary, or Indebtedness expressly assumed by the Issuer or any Restricted Subsidiary in connection with the acquisition of an asset or assets from another Person, which Indebtedness was not, in any case, incurred by such other Person in connection with, or in contemplation of, such merger or acquisition.

      “Additional Interest” has the meaning set forth in the Registration Rights Agreement.

      “Affiliate” of any Person means any other Person which directly or indirectly controls or is controlled by, or is under direct or indirect common control with, the referent Person. For purposes of the covenant described under “— Certain Covenants — Limitations on Transactions with Affiliates,” Affiliates shall be deemed to include, with respect to any Person, any other Person (1) which beneficially owns or holds, directly or indirectly, 10% or more of any class of the Voting Stock of the referent Person, (2) of which 10% or more of the Voting Stock is beneficially owned or held, directly or indirectly, by the referenced Person or (3) with respect to an individual, any immediate family member of such Person. For purposes of this definition, “control” of a Person shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

      “amend” means to amend, supplement, restate or amend and restate or otherwise modify, including successively; and “amendment” shall have a correlative meaning.

      “asset” means any asset or property.

      “Asset Acquisition” means:

      (1) an Investment by the Issuer or any Restricted Subsidiary in any other Person if, as a result of such Investment, such Person shall become a Restricted Subsidiary, or shall be merged with or into the Issuer or any Restricted Subsidiary; or

      (2) the acquisition by the Issuer or any Restricted Subsidiary of all or substantially all of the assets of any other Person or any division or line of business of any other Person.

      “Asset Sale” means any sale, issuance, conveyance, transfer, lease, assignment or other disposition by the Issuer or any Restricted Subsidiary to any Person other than the Issuer or any Restricted Subsidiary (including by means of a Sale and Leaseback Transaction or a merger or consolidation) (collectively, for purposes of this definition, a “transfer”), in one transaction or a series of related transactions, of any assets (including Equity Interests) of the Issuer or any Restricted Subsidiaries other than in the ordinary course of business. For purposes of this definition, the term “Asset Sale” shall not include:

      (1) transfers of cash or Cash Equivalents;

      (2) transfers of assets (including Equity Interests) that are governed by, and made in accordance with, the covenant described under “— Certain Covenants — Limitations on mergers, consolidations, etc.”;

      (3) Permitted Investments and Restricted Payments permitted under the covenant described under “— Certain Covenants — Limitations on restricted payments”;

      (4) the creation of or realization on any Permitted Lien;

      (5) transactions in the ordinary course of business, including, without limitation, sales (directly or indirectly), dedications and other donations to governmental authorities, leases and sales and leasebacks of (A) homes, improved land and unimproved land and (B) real estate (including related amenities and improvements); and

      (6) any transfer or series of related transfers that, but for this clause, would be Asset Sales, if after giving effect to such transfers, the aggregate Fair Market Value of the assets transferred in such transaction or any such series of related transactions does not exceed $2.0 million.

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      “Attributable Indebtedness”, when used with respect to any Sale and Leaseback Transaction, means, as at the time of determination, the present value (discounted at a rate equivalent to the Issuer’s then-current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of any lease included in any such Sale and Leaseback Transaction.

      “Bankruptcy Law” means Title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors.

      “Board of Directors” means, with respect to any Person, (i) in the case of any corporation, the board of directors of such Person, (ii) in the case of any limited liability company, the board of managers or board of directors of such Person, as the case may be, (iii) in the case of any partnership, the board of directors of the general partner of such Person and (iv) in any other case, the functional equivalent of the foregoing or, in each case, other than for purposes of the definition of “Change of Control,” any duly authorized committee of such body.

      “Borrowing Base” means, at any time of determination, the sum of the following without duplication:

      (1) 100% of all cash and Cash Equivalents held by the Issuer or any Restricted Subsidiary;

      (2) 80% of the book value of Developed Land for which no construction has occurred;

      (3) 95% of the cost of the land and construction costs including capitalized interest (as reasonably allocated by the Issuer) for all Units for which there is an executed purchase contract with a buyer not Affiliated with the Issuer, less any deposits, down payments or earnest money;

      (4) 80% of the cost of the land and construction costs including capitalized interest (as reasonably allocated by the Issuer) for all Units for which construction has begun and for which there is not an executed purchase agreement with a buyer not Affiliated with the Issuer; and

      (5) 70% of the costs of Entitled Land (other than Developed Land) on which improvements have not commenced, less mortgage Indebtedness (other than under the Credit Facility) applicable to such land.

      “Business Day” means a day other than a Saturday, Sunday or other day on which banking institutions in New York are authorized or required by law to close.

      “Capitalized Lease” means a lease required to be capitalized for financial reporting purposes in accordance with GAAP.

      “Capitalized Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under a Capitalized Lease, and the amount of such obligation shall be the capitalized amount thereof determined in accordance with GAAP.

      “Cash Equivalents” means:

      (1) marketable obligations with a maturity of 360 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof);

      (2) demand and time deposits and certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500 million and is assigned at least a “B” rating by Thomson Financial BankWatch;

      (3) commercial paper maturing no more than 180 days from the date of creation thereof issued by a corporation that is not the Issuer or an Affiliate of the Issuer, and is organized under the laws of any State of the United States of America or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody’s;

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      (4) repurchase obligations with a term of not more than ten days for underlying securities of the types described in clause (1) above entered into with any commercial bank meeting the specifications of clause (2) above; and

      (5) investments in money market or other mutual funds substantially all of whose assets comprise securities of the types described in clauses (1) through (4) above.

      “Change of Control” means the occurrence of any of the following events:

      (1) prior to a Public Equity Offering after the Issue Date, the Permitted Holders cease to own, or to have the power to vote or direct the voting of, Voting Stock representing more than 50% of the voting power of the total outstanding Voting Stock of the Issuer;

      (2) following a Public Equity Offering after the Issue Date, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause that person or group shall be deemed to have “beneficial ownership” of all securities that any such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of Voting Stock representing more than 35% of the voting power of the total outstanding Voting Stock of the Issuer; provided, however, that such event shall not be deemed to be a Change of Control so long as the Permitted Holders own Voting Stock representing in the aggregate a greater percentage of the total voting power of the Voting Stock of the Issuer than such other person or group;

      (3) following a Public Equity Offering after the Issue Date, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election to such Board of Directors or whose nomination for election by the members of the Issuer was approved by a vote of the majority of the directors of the Issuer then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Issuer;

      (4) (a) all or substantially all of the assets of the Issuer and the Restricted Subsidiaries taken as a whole are sold or otherwise transferred to any Person other than a Wholly Owned Restricted Subsidiary or one or more Permitted Holders or their Affiliates or (b) the Issuer consolidates or merges with or into another Person or any Person consolidates or merges with or into the Issuer, in either case under this clause (4), in one transaction or a series of related transactions in which immediately after the consummation thereof Persons beneficially owning (as defined in Rule 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, Voting Stock representing in the aggregate 100% of the total voting power of the Voting Stock of the Issuer immediately prior to such consummation do not beneficially own (as defined in Rule 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, Voting Stock representing a majority of the total voting power of the Voting Stock of the Issuer or the surviving or transferee Person; or

      (5) the Issuer shall adopt a plan of liquidation or dissolution or any such plan shall be approved by the stockholders of the Issuer.

      “Consolidated Amortization Expense” for any period means the amortization expense of the Issuer and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

      “Consolidated Cash Flow Available for Fixed Charges” for any period means the sum, without duplication, of the amounts for such period of:

      (1) Consolidated Net Income; plus

      (2) in each case only to the extent (and in the same proportion) deducted in determining Consolidated Net Income and with respect to the portion of Consolidated Net Income attributable to

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any Restricted Subsidiary only if a corresponding amount would be permitted at the date of determination to be distributed to the Issuer by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders,

      (a) Consolidated Income Tax Expense,

      (b) Consolidated Amortization Expense (but only to the extent not included in Consolidated Interest Expense),

      (c) Consolidated Depreciation Expense,

      (d) Consolidated Interest Expense and interest and other charges amortized to cost of home sales and cost of land sales, and

      (e) all other non-cash items reducing the Consolidated Net Income (excluding any non-cash charge that results in an accrual of a reserve for cash charges in any future period) for such period,

in each case determined on a consolidated basis in accordance with GAAP; minus

      (3) the aggregate amount of all non-cash items, determined on a consolidated basis, to the extent such items increased Consolidated Net Income for such period.

      “Consolidated Depreciation Expense” for any period means the depreciation expense of the Issuer and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

      “Consolidated Fixed Charge Coverage Ratio” means the ratio of Consolidated Cash Flow Available for Fixed Charges during the most recent four consecutive full fiscal quarters for which financial statements are available (the “Four-Quarter Period”) ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the “Transaction Date”) to Consolidated Interest Incurred for the Four-Quarter Period. For purposes of this definition, Consolidated Cash Flow Available for Fixed Charges and Consolidated Interest Incurred shall be calculated after giving effect on a pro forma basis for the period of such calculation to:

      (1) the incurrence of any Indebtedness or the issuance of any Preferred Stock of the Issuer or any Restricted Subsidiary (and the application of the proceeds thereof) and any repayment of other Indebtedness or redemption of other Preferred Stock (and the application of the proceeds therefrom) (other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to any revolving credit arrangement) occurring during the Four-Quarter Period or at any time subsequent to the last day of the Four-Quarter Period and on or prior to the Transaction Date, as if such incurrence, repayment, issuance or redemption, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four-Quarter Period; and

      (2) any Asset Sale or Asset Acquisition (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Issuer or any Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary as a result of such Asset Acquisition) incurring Acquired Indebtedness and also including any Consolidated Cash Flow Available for Fixed Charges (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Exchange Act) associated with any such Asset Acquisition) occurring during the Four-Quarter Period or at any time subsequent to the last day of the Four-Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence of, or assumption or liability for, any such Indebtedness or Acquired Indebtedness) occurred on the first day of the Four-Quarter Period.

      If the Issuer or any Restricted Subsidiary directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if the

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Issuer or such Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness.

      In calculating Consolidated Interest Incurred for purposes of determining the denominator (but not the numerator) of this Consolidated Fixed Charge Coverage Ratio:

      (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date;

      (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four-Quarter Period; and

      (3) notwithstanding clause (1) or (2) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements with a term of at least one year after the Transaction Date relating to Hedging Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of these agreements.

      “Consolidated Income Tax Expense” for any period means the provision for taxes of the Issuer and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP.

      “Consolidated Indebtedness” means, as of any date, the total Indebtedness of the Issuer and the Restricted Subsidiaries as of such date, determined on a consolidated basis.

      “Consolidated Interest Expense” for any period means the sum, without duplication, of the total interest expense (other than interest and other charges amortized to cost of home sales and cost of land sales) of the Issuer and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP and including without duplication:

      (1) imputed interest on Capitalized Lease Obligations and Attributable Indebtedness;

      (2) commissions, discounts and other fees and charges owed with respect to letters of credit securing financial obligations, bankers’ acceptance financing and receivables financings;

      (3) the net costs associated with Hedging Obligations;

      (4) amortization of debt issuance costs, debt discount or premium and other financing fees and expenses;

      (5) the interest portion of any deferred payment obligations;

      (6) all other non-cash interest expense;

      (7) the product of (a) all dividend payments on any series of Disqualified Equity Interests of the Issuer or any Preferred Stock of any Restricted Subsidiary (other than any such Disqualified Equity Interests or any Preferred Stock held by the Issuer or a Wholly Owned Restricted Subsidiary), multiplied by (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of the Issuer and the Restricted Subsidiaries, expressed as a decimal;

      (8) all interest payable with respect to discontinued operations; and

      (9) all interest on any Indebtedness described in clause (7) or (8) of the definition of “Indebtedness”.

      “Consolidated Interest Incurred” for any period means the sum, without duplication, of (1) Consolidated Interest Expense and (2) interest capitalized for such period (including interest capitalized with

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respect to discontinued operations but not including interest or other charges amortized to cost of home sales and cost of land sales).

      “Consolidated Net Income” for any period means the net income (or loss) of the Issuer and the Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided, however, that there shall be excluded from such net income (to the extent otherwise included therein), without duplication:

      (1) the net income (or loss) of any Person (other than a Restricted Subsidiary) in which any Person other than the Issuer and the Restricted Subsidiaries has an ownership interest, except to the extent that cash in an amount equal to any such income has actually been received by the Issuer or any of its Restricted Subsidiaries during such period;

      (2) except to the extent includible in the consolidated net income of the Issuer pursuant to the foregoing clause (1), the net income (or loss) of any Person that accrued prior to the date that (a) such Person becomes a Restricted Subsidiary or is merged into or consolidated with the Issuer or any Restricted Subsidiary or (b) the assets of such Person are acquired by the Issuer or any Restricted Subsidiary;

      (3) the net income of any Restricted Subsidiary during such period to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of that income is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary during such period, except that the Issuer’s equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining Consolidated Net Income;

      (4) for the purposes of calculating the Restricted Payments Basket only, in the case of a successor to the Issuer by consolidation, merger or transfer of its assets, any income (or loss) of the successor prior to such merger, consolidation or transfer of assets;

      (5) other than for purposes of calculating the Restricted Payments Basket, any gain (or loss), together with any related provisions for taxes on any such gain (or the tax effect of any such loss), realized during such period by the Issuer or any Restricted Subsidiary upon (a) the acquisition of any securities, or the extinguishment of any Indebtedness, of the Issuer or any Restricted Subsidiary or (b) any Asset Sale by the Issuer or any Restricted Subsidiary;

      (6) unrealized gains and losses with respect to Hedging Obligations;

      (7) the cumulative effect of any change in accounting principle;

      (8) the amount of dividends or distributions paid by the Issuer to any direct parent in reliance on clause (5) of the second paragraph of the covenant entitled “Certain Covenants — Limitations on restricted payments”; and

      (9) other than for purposes of calculating the Restricted Payments Basket, any extraordinary gain (or extraordinary loss), together with any related provision for taxes on any such extraordinary gain (or the tax effect of any such extraordinary loss), realized by the Issuer or any Restricted Subsidiary during such period.

      In addition, any return of capital with respect to an Investment that increased the Restricted Payments Basket pursuant to clause (3)(d) of the first paragraph of the covenant described under “— Certain Covenants — Limitations on restricted payments” or decreased the amount of Investments outstanding pursuant to clause (14) of the definition of “Permitted Investments” shall be excluded from Consolidated Net Income for purposes of calculating the Restricted Payments Basket. Any payment of dividends or distribution of amounts by the Issuer pursuant to clause (5) of the second paragraph of the covenant described under “Certain Covenants — Limitations on restricted payments” shall be deducted for purposes of calculating Consolidated Net Income for purposes of calculating the Restricted Payments Basket.

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      “Consolidated Net Worth” means, with respect to any Person as of any date, the consolidated stockholders’ equity of such Person, determined on a consolidated basis at the end of the fiscal quarter immediately preceding such date, as determined in accordance with GAAP, less (without duplication) (1) any amounts thereof attributable to Disqualified Equity Interests of such Person or its Subsidiaries or any amount attributable to Unrestricted Subsidiaries and (2) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within twelve months after the acquisition of such business) subsequent to the Issue Date in the book value of any asset owned by such Person or a Subsidiary of such Person.

      “Consolidated Tangible Assets” means, as of any date, the total amount of assets of the Issuer and the Restricted Subsidiaries determined on a consolidated basis at the end of the fiscal quarter immediately preceding such date, as determined in accordance with GAAP, less (1) Intangible Assets and (2) any assets securing Non-Recourse Indebtedness up to the amount of such Non-Recourse Indebtedness.

      “Consolidated Tangible Net Worth” means, with respect to any Person as of any date, the Consolidated Net Worth of such Person determined on a consolidated basis at the end of the fiscal quarter immediately preceding such date less (without duplication) all Intangible Assets of such Person as of such date.

      “Credit Facilities” means the Credit Agreement dated as of January 20, 2005 by and among the Issuer, as borrower, the lenders party thereto and Wachovia Bank, National Association, as agent for the lenders, including any notes, guarantees, collateral and security documents, instruments and agreements executed in connection therewith (including Hedging Obligations related to the Indebtedness incurred thereunder), and in each case as amended or refinanced from time to time, including any agreement or instrument extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of borrowings or other Indebtedness outstanding or available to be borrowed thereunder) all or any portion of the Indebtedness under such agreements, and any successor or replacement agreement or agreements with the same or any other agents, creditor, lender or group of creditors or lenders.

      “Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

      “Default” means (1) any Event of Default or (2) any event, act or condition that, after notice or the passage of time or both, would be an Event of Default.

      “Designated Senior Debt” means (1) Senior Debt and Guarantor Senior Debt under or in respect of the Credit Facilities and (2) any other Indebtedness constituting Senior Debt or Guarantor Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as “Designated Senior Debt.”

      “Developed Land” means all Entitled Land of the Issuer and its Restricted Subsidiaries which is undergoing development or is ready for vertical construction.

      “Disqualified Equity Interests” of any Person means any class of Equity Interests of such Person that, by its terms, or by the terms of any related agreement or of any security into which it is convertible, puttable or exchangeable, is, or upon the happening of any event or the passage of time would be, required to be redeemed by such Person, whether or not at the option of the holder thereof, or matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, in whole or in part, on or prior to the date which is 91 days after the final maturity date of the Notes; provided, however, that any class of Equity Interests of such Person that, by its terms, authorizes such Person to satisfy in full its obligations with respect to the payment of dividends or upon maturity, redemption (pursuant to a sinking fund or otherwise) or repurchase thereof or otherwise by the delivery of Equity Interests that are not Disqualified Equity Interests, and that is not convertible, puttable or exchangeable for Disqualified Equity Interests or Indebtedness, will not be deemed to be Disqualified Equity Interests so long as such Person satisfies its obligations with respect thereto solely by the delivery of Equity Interests that are not Disqualified Equity Interests; provided further, however, that any Equity Interests that would not constitute Disqualified Equity

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Interests but for provisions thereof giving holders thereof (or the holders of any security into or for which such Equity Interests are convertible, exchangeable or exercisable) the right to require the Issuer to redeem such Equity Interests upon the occurrence of a change in control occurring prior to the final maturity date of the Notes shall not constitute Disqualified Equity Interests if the change in control provisions applicable to such Equity Interests are no more favorable to such holders than the provisions described under the caption “— Change of Control” and such Equity Interests specifically provide that the Issuer will not redeem any such Equity Interests pursuant to such provisions prior to the Issuer’s purchase of the Notes as required pursuant to the provisions described under the caption “— Change of Control.”

      “Entitled Land” means all land of the Issuer and the Restricted Subsidiaries (a) on which Units may be constructed or which may be utilized for commercial, retail or industrial uses, in each case, under applicable laws and regulations and (b) the intended use by the Issuer for which is permissible under the applicable regional plan, development agreement or applicable zoning ordinance.

      “Equity Interests” of any Person means (1) any and all shares or other equity interests (including common stock, preferred stock, limited liability company interests and partnership interests) in such Person and (2) all rights to purchase, warrants or options (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) such shares or other interests in such Person.

      “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

      “Fair Market Value” means, with respect to any asset, the price (after taking into account any liabilities relating to such assets) that would be negotiated in an arm’s-length transaction for cash between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction, as such price is determined in good faith by the Board of Directors of the Issuer or a duly authorized committee thereof, as evidenced by a resolution of such Board or committee.

      “GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the Issue Date.

      “guarantee” means a direct or indirect guarantee by any Person of any Indebtedness of any other Person and includes any obligation, direct or indirect, contingent or otherwise, of such Person: (1) to purchase or pay (or advance or supply funds for the purchase or payment of) Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services (unless such purchase arrangements are on arm’s-length terms and are entered into in the ordinary course of business), to take-or-pay, or to maintain financial statement conditions or otherwise); or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part). “guarantee,” when used as a verb, and “guaranteed” have correlative meanings.

      “Guarantor” means each Restricted Subsidiary of the Issuer on the Issue Date, and each other Person that is required to become a Guarantor by the terms of the Indenture after the Issue Date, in each case, until such Person is released from its Note Guarantee.

      “Guarantor Senior Debt” means, with respect to any Guarantor, the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes.

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      Without limiting the generality of the foregoing, “Guarantor Senior Debt” shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of:

      (1) all monetary obligations of every nature of such Guarantor under, or with respect to, the Credit Facilities, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities (and guarantees thereof); and

      (2) all Hedging Obligations in respect of the Credit Facilities;

in each case whether outstanding on the Issue Date or thereafter incurred.

      Notwithstanding the foregoing, “Guarantor Senior Debt” shall not include:

      (1) any Indebtedness of such Guarantor to the Issuer or any of its Subsidiaries;

      (2) Indebtedness to, or guaranteed on behalf of, any director, officer or employee of the Issuer or any of its other Subsidiaries (including, without limitation, amounts owed for compensation);

      (3) obligations to trade creditors and other amounts incurred (but not under the Credit Facilities) in connection with obtaining goods, materials or services;

      (4) Indebtedness represented by Disqualified Equity Interests;

      (5) any liability for taxes owed or owing by such Guarantor;

      (6) that portion of any Indebtedness incurred in violation of the covenant described under “— Certain Covenants — Limitations on additional indebtedness” (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (6) if the holder(s) of such obligation or their representative shall have received an officers’ certificate of such Guarantor to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit indebtedness, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of the Indenture);

      (7) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor; and

      (8) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor.

      “Hedging Obligations” of any Person means the obligations of such Person pursuant to (1) any interest rate swap agreement, interest rate collar agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in interest rates, (2) agreements or arrangements designed to protect such Person against fluctuations in foreign currency exchange rates in the conduct of its operations or (3) any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in commodity prices, in each case entered into in the ordinary course of business for bona fide hedging purposes and not for the purpose of speculation.

      “Holder” means any registered holder, from time to time, of the Notes.

      “incur” means, with respect to any Indebtedness or Obligation, incur, create, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to such Indebtedness or Obligation; provided, however, that (1) the Indebtedness of a Person existing at the time such Person became a Restricted Subsidiary or at the time such Person merged with or into the Issuer or a Restricted Subsidiary shall be deemed to have been incurred at such time and (2) neither the accrual of interest nor the accretion of original issue discount shall be deemed to be an incurrence of Indebtedness.

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      “Indebtedness” of any Person at any date means, without duplication:

      (1) all liabilities, contingent or otherwise, of such Person for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof);

      (2) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

      (3) all obligations of such Person in respect of letters of credit or other similar instruments (or reimbursement obligations with respect thereto);

      (4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables and accrued expenses incurred by such Person in the ordinary course of business in connection with obtaining goods, materials or services;

      (5) the maximum fixed redemption or repurchase price of all Disqualified Equity Interests of such Person;

      (6) all Capitalized Lease Obligations of such Person;

      (7) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person;

      (8) all Indebtedness of others guaranteed by such Person to the extent of such guarantee; provided, however, that Indebtedness of the Issuer or its Subsidiaries that is guaranteed by the Issuer or the Issuer’s Subsidiaries shall be counted only once in the calculation of the amount of Indebtedness of the Issuer and its Subsidiaries on a consolidated basis;

      (9) all Attributable Indebtedness;

      (10) to the extent not otherwise included in this definition, Hedging Obligations of such Person;

      (11) all obligations of such Person under conditional sale or other title retention agreements relating to assets purchased by such Person; and

      (12) the liquidation value of Preferred Stock of a Subsidiary of such Person issued and outstanding and held by any Person other than such Person (or one of its Wholly Owned Restricted Subsidiaries).

      Notwithstanding the foregoing, the following shall not be considered Indebtedness: (a) earn-outs or similar profit sharing arrangements provided for in acquisition agreements which are determined on the basis of future operating earnings or other similar performance criteria (which are not determinable at the time of acquisition) of the acquired assets or entities; and (b) accrued expenses, trade payables, customer deposits or deferred income taxes arising in the ordinary course of business. Any Indebtedness which is incurred at a discount to the principal amount at maturity thereof shall be deemed to have been incurred at the full principal amount at maturity thereof. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above, the maximum liability of such Person for any such contingent obligations at such date and, in the case of clause (7), the lesser of (a) the Fair Market Value of any asset subject to a Lien securing the Indebtedness of others on the date that the Lien attaches and (b) the amount of the Indebtedness secured. For purposes of clause (5), the “maximum fixed redemption or repurchase price” of any Disqualified Equity Interests that do not have a fixed redemption or repurchase price shall be calculated in accordance with the terms of such Disqualified Equity Interests as if such Disqualified Equity Interests were redeemed or repurchased, as the case may be, on any date on which an amount of Indebtedness outstanding shall be required to be determined pursuant to the Indenture.

      The Indenture will not restrict any Unrestricted Subsidiary from incurring Indebtedness nor will Indebtedness of any Unrestricted Subsidiaries be included in the Consolidated Fixed Charge Coverage Ratio or the ratio of Consolidated Indebtedness to Consolidated Tangible Net Worth hereunder, as long as the Unrestricted Subsidiary incurring such Indebtedness remains an Unrestricted Subsidiary.

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      “Independent Financial Advisor” means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable judgment of the Issuer’s Board of Directors, qualified to perform the task for which it has been engaged and disinterested and independent with respect to the Issuer and its Affiliates or, in the case of an Affiliate Transaction involving the sale, transfer or other disposition or purchase of real property by the Issuer or a Restricted Subsidiary, an appraisal firm reasonably satisfactory to the independent financial institution that provided the financing for the initial acquisition of such real property by the Affiliate of the Issuer or such Restricted Subsidiary.

      “Intangible Assets” means, with respect to any Person, all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, write-ups of assets over their carrying value (other than write-ups which occurred prior to the Issue Date and other than, in connection with the acquisition of an asset, the write-up of the value of such asset to its Fair Market Value in accordance with GAAP on the date of acquisition) and all other items which would be treated as intangibles on the consolidated balance sheet of such Person prepared in accordance with GAAP.

      “interest” means, with respect to the Notes, interest and Additional Interest, if any, on the Notes.

      “Investments” of any Person means:

      (1) all direct or indirect investments by such Person in any other Person in the form of loans, advances or capital contributions or other credit extensions constituting Indebtedness of such other Person, and any guarantee of Indebtedness of any other Person;

      (2) all purchases (or other acquisitions for consideration) by such Person of Indebtedness, Equity Interests or other securities of any other Person;

      (3) all other items that would be classified as investments on a balance sheet of such Person prepared in accordance with GAAP; and

      (4) the Designation of any Subsidiary as an Unrestricted Subsidiary.

      Except as otherwise expressly specified in this definition, the amount of any Investment (other than an Investment made in cash) shall be the Fair Market Value thereof on the date such Investment is made. The amount of Investment pursuant to clause (4) shall be the Designation Amount determined in accordance with the covenant described under “— Certain Covenants — Limitations on designation of unrestricted subsidiaries.” If the Issuer or any Subsidiary sells or otherwise disposes of any Equity Interests of any Subsidiary, or any Subsidiary issues any Equity Interests, in either case such that, after giving effect to any such sale, disposition or other issuance, such Person is no longer a Subsidiary, the Issuer shall be deemed to have made an Investment on the date of any such sale, other disposition or other issuance equal to the Fair Market Value of the Equity Interests of and all other Investments in such Subsidiary not sold, disposed of or issued, which amount shall be determined by the Board of Directors of the Issuer. Notwithstanding the foregoing, redemptions of Equity Interests of the Issuer shall be deemed not to be Investments.

      “Issue Date” means September 21, 2005, the date on which the Notes were originally issued.

      “Lien” means, with respect to any asset, any mortgage, deed of trust, lien (statutory or other), pledge, lease, easement, restriction, covenant, charge, security interest or other encumbrance of any kind or nature in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, and any lease in the nature thereof, any option or other agreement to sell, and any filing of, or agreement to give, any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction (other than cautionary filings in respect of operating leases).

      “Moody’s” means Moody’s Investors Service, Inc., and its successors.

      “Net Available Proceeds” means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents, net of

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      (1) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel, accountants and investment banks) of such Asset Sale;

      (2) provisions for taxes payable as a result of such Asset Sale (after taking into account any available tax credits or deductions and any tax sharing arrangements);

      (3) amounts required to be paid to any Person (other than the Issuer or any Restricted Subsidiary and other than under the Credit Facilities) owning a beneficial interest in the assets subject to the Asset Sale or having a Lien thereon;

      (4) payments of unassumed liabilities (not constituting Indebtedness) relating to the assets sold at the time of, or within 30 days after the date of, such Asset Sale; and

      (5) appropriate amounts to be provided by the Issuer or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any adjustment in the sale price of such asset or assets or any liabilities associated with such Asset Sale and retained by the Issuer or any Restricted Subsidiary, as the case may be, after such Asset Sale, including pensions and other postemployment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers’ Certificate delivered to the Trustee; provided, however, that any amounts remaining after adjustments, revaluations or liquidations of such reserves shall constitute Net Available Proceeds.

      “Non-Recourse Indebtedness” with respect to any Person means Indebtedness of such Person for which (1) the sole legal recourse for collection of principal and interest on such Indebtedness is against the specific property identified in the instruments evidencing or securing such Indebtedness and such property was acquired with the proceeds of such Indebtedness or such Indebtedness was incurred within 90 days after the acquisition of such property and (2) no other assets of such Person may be realized upon in collection of principal or interest on such Indebtedness.

      “Obligation” means any principal, interest, penalties, fees, indemnification, reimbursements, costs, expenses, damages and other liabilities payable under the documentation governing any Indebtedness.

      “Officer” of any Person means any of the following of such Person: the Chairman of the Board of Directors, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer or the Secretary.

      “Officers’ Certificate” of any Person means a certificate signed by two Officers of such Person.

      “Pari Passu Indebtedness” means any Indebtedness of the Issuer or any Guarantor that ranks pari passu in right of payment with the Notes or the Note Guarantees, as applicable.

      “Permitted Holders” means (1)(a) Elly Nevada, Inc., (b) Norman Nevada, Inc., (c) Larry Nevada, Inc., (d) Little Shots Nevada, L.L.C., (e) Elly Colorado, Inc., (f) Norman Colorado, Inc. and (g) Larry Colorado, Inc.; (2) any equityholder, general partner or managing member of any of the Persons referenced above in clause (1); (3) any officer, director, employee, member, partner or equityholder of the manager or general partner of any of the Persons referenced above in clauses (1) and (2); (4) the spouses and descendants of the Persons referenced in clause (2); (5) in the event of the incompetence or death of any of the Persons referred to in clause (2) and (3) above, such Person’s estate, executor, administrator, committee or other personal representative, in each case who at a particular date shall be the beneficial owner of or have the right to acquire, directly or indirectly, capital stock of the Issuer (or any other direct or indirect parent company of the Issuer); and (6) any trust created for the benefit of, or any entity or entities wholly-owned by, the Persons referenced above in clauses (1) through (5).

      “Permitted Investment” means:

      (1) Investments by the Issuer, the Co-Issuer or any Restricted Subsidiary in (a) any Restricted Subsidiary or (b) in any Person that is or will become immediately after such Investment a Restricted Subsidiary or that will merge or consolidate into the Issuer or a Restricted Subsidiary;

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      (2) Investments in the Issuer by any Restricted Subsidiary;

      (3) loans and advances to directors, employees and officers of the Issuer and the Restricted Subsidiaries for bona fide business purposes and to purchase Equity Interests of the Issuer not in excess of $2.0 million at any one time outstanding;

      (4) Hedging Obligations incurred pursuant to clause (4) of the second paragraph under the covenant described under “— Certain Covenants — Limitations on Additional Indebtedness”;

      (5) cash and Cash Equivalents;

      (6) receivables owing to the Issuer or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Issuer or any such Restricted Subsidiary deems reasonable under the circumstances;

      (7) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers;

      (8) Investments made by the Issuer or any Restricted Subsidiary as a result of consideration received in connection with an Asset Sale made in compliance with the covenant described under “— Certain Covenants — Limitations on Asset Sales”;

      (9) lease, utility and other similar deposits in the ordinary course of business;

      (10) Investments made by the Issuer or a Restricted Subsidiary for consideration consisting only of Qualified Equity Interests of the Issuer;

      (11) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Issuer or any Restricted Subsidiary or in satisfaction of judgments;

      (12) Investments in existence on the Issue Date;

      (13) Investments made by the Issuer or any Restricted Subsidiary in joint ventures in the business of the Issuer or such Restricted Subsidiary with unaffiliated third parties in an aggregate amount at any one time outstanding not to exceed 30% of the Issuer’s Consolidated Tangible Net Worth at such time (with each Investment being valued as of the date made and without regard to subsequent changes in value); and

      (14) other Investments in an aggregate amount not to exceed 5% of the Issuer’s Consolidated Tangible Net Worth at such time (with each Investment being valued as of the date made and without regard to subsequent changes in value).

      The amount of Investments outstanding at any time pursuant to clauses (13) or (14) above shall be deemed to be reduced:

      (a) upon the disposition or repayment of or return on any Investment made pursuant to clauses (13) or (14) above, by an amount equal to the return of capital with respect to such Investment to the Issuer or any Restricted Subsidiary (to the extent not included in the computation of Consolidated Net Income), less the cost of the disposition of such Investment and net of taxes; and

      (b) upon a Redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, by an amount equal to the lesser of (x) the Fair Market Value of the Issuer’s proportionate interest in such Subsidiary immediately following such Redesignation, and (y) the aggregate amount of Investments in such Subsidiary that increased (and did not previously decrease) the amount of Investments outstanding pursuant to clauses (13) or (14) above.

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      “Permitted Junior Securities” means:

      (1) Equity Interests in the Issuer, the Co-Issuer or any Guarantor; or

      (2) debt securities issued pursuant to a confirmed plan of reorganization that are subordinated in right of payment to (a) all Senior Debt and Guarantor Senior Debt and (b) any debt securities issued in exchange for Senior Debt to substantially the same extent as, or to a greater extent than, the Notes and the Note Guarantees are subordinated to Senior Debt and Guarantor Senior Debt under the Indenture.

      “Permitted Liens” means the following types of Liens:

      (1) (a) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business and (b) Liens for taxes, assessments or governmental charges or claims, in either case, for sums not yet delinquent or being contested in good faith by appropriate proceedings, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof;

      (2) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money);

      (3) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

      (4) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other assets relating to such letters of credit and products and proceeds thereof;

      (5) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Issuer or any Restricted Subsidiary, including rights of offset and setoff;

      (6) bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by the Issuer or any Restricted Subsidiary, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank with respect to cash management and operating account arrangements, including those involving pooled accounts and netting arrangements; provided, however, that in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness;

      (7) leases or subleases (or any Liens related thereto) granted to others that do not materially interfere with the ordinary course of business of the Issuer or any Restricted Subsidiary;

      (8) Liens arising from filing Uniform Commercial Code financing statements regarding leases;

      (9) Liens securing all of the Notes and Liens securing any Note Guarantee;

      (10) Liens existing on the Issue Date securing Indebtedness outstanding on the Issue Date;

      (11) Liens in favor of the Issuer or a Guarantor;

      (12) Liens securing Senior Debt or Guarantor Senior Debt, including Indebtedness under the Credit Facilities;

      (13) Liens securing Non-Recourse Indebtedness of the Issuer or any Restricted Subsidiary permitted to be incurred under the Indenture; provided, however, that such Liens apply only to the

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property financed out of the net proceeds of such Non-Recourse Indebtedness within 90 days after the incurrence of such Non-Recourse Indebtedness;

      (14) Liens securing Purchase Money Indebtedness permitted to be incurred under the Indenture; provided, however, that such Liens apply only to the property acquired, constructed or improved with the proceeds of such Purchase Money Indebtedness within 90 days after the incurrence of such Purchase Money Indebtedness;

      (15) Liens securing Acquired Indebtedness permitted to be incurred under the Indenture; provided, however, that the Liens do not extend to assets not subject to such Lien at the time of acquisition (other than improvements thereon) and are no more favorable to the lienholders than those securing such Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Issuer or a Restricted Subsidiary;

      (16) Liens on assets of a Person existing at the time such Person is acquired or merged with or into or consolidated with the Issuer or any such Restricted Subsidiary (and not created in anticipation or contemplation thereof); provided, however, that the Liens do not extend to assets of a Person not subject to such Lien at the time of acquisition, merger or consolidation (other than improvements thereon) and are no more favorable to the lienholders than those securing such assets prior to the acquisition or merger with or into or consolidation with the Issuer or a Restricted Subsidiary;

      (17) Liens to secure Attributable Indebtedness permitted to be incurred under the Indenture; provided, however, that any such Lien shall not extend to or cover any assets of the Issuer or any Restricted Subsidiary other than the assets which are the subject of the Sale and Leaseback Transaction in which the Attributable Indebtedness is incurred;

      (18) Liens to secure Refinancing Indebtedness which is incurred to refinance any Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture;

      (19) attachment or judgment Liens not giving rise to a Default and which are being contested in good faith by appropriate proceedings;

      (20) easements, rights-of-way, restrictions and other similar charges or encumbrances not materially interfering with the ordinary course of business of the Issuer and its Subsidiaries;

      (21) zoning restrictions, licenses, restrictions on the use of real property or minor irregularities in title thereto, which do not materially impair the use of such real property in the ordinary course of business of the Issuer and its Subsidiaries or the value of such real property for the purpose of such business;

      (22) any right of first refusal, right of first offer, option, contract or other agreement to sell an asset; provided, however, such sale is not otherwise prohibited under the Indenture;

      (23) Liens securing Hedging Obligations entered into for bona fide hedging purposes of the Issuer or any Restricted Subsidiary not for the purpose of speculation;

      (24) Liens securing Indebtedness incurred pursuant to clause (11) of the definition of Permitted Indebtedness; provided such Lien relates only to the Developed Land purchased;

      (25) Liens or leases of model home units;

      (26) Liens for homeowner and property owner association developments and assessments;

      (27) Liens incurred in the ordinary course of business as security for the obligations of the Issuer and its Restricted Subsidiaries with respect to indemnification in respect of title insurance providers;

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      (28) Liens of a lessor under any Capitalized Lease Obligation permitted to be incurred under the Indenture; provided that such Liens do not extend to any property or assets which are not leased property subject to such Capitalized Lease Obligation; and

      (29) Liens securing Hedging Obligations permitted to be incurred pursuant to clause (4) of the definition of “Permitted Indebtedness”.

      “Permitted Unrestricted Subsidiary Debt” means Indebtedness of an Unrestricted Subsidiary:

      (1) as to which neither the Issuer nor any Restricted Subsidiary (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise or (c) constitutes the lender;

      (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Issuer or any Restricted Subsidiary to declare a default on the other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and

      (3) as to which the lenders have been notified in writing that they will not have any recourse to the Equity Interests or assets of the Issuer or any Restricted Subsidiary or the documentation is otherwise clearly non-recourse.

      “Person” means any individual, corporation, partnership, limited liability company, joint venture, incorporated or unincorporated association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof or other entity of any kind.

      “Plan of Liquidation” with respect to any Person, means a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise): (1) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such Person otherwise than as an entirety or substantially as an entirety; and (2) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition of all or substantially all of the remaining assets of such Person to creditors and holders of Equity Interests of such Person.

      “Preferred Stock” means, with respect to any Person, any and all preferred or preference stock or other equity interests (however designated) of such Person whether now outstanding or issued after the Issue Date.

      “principal” means, with respect to the Notes, the principal of, and premium, if any, on the Notes.

      “Public Equity Offering” means an underwritten public offering of Qualified Equity Interests of the Issuer pursuant to an effective registration statement filed under the Securities Act.

      “Purchase Money Indebtedness” means Indebtedness of the Issuer or any Restricted Subsidiary incurred for the purpose of financing all or any part of the purchase price of property, plant or equipment used in the business of the Issuer or any Restricted Subsidiary or the cost of installation, construction or improvement thereof; provided, however, that (1) the amount of such Indebtedness shall not exceed such purchase price or cost, (2) such Indebtedness shall not be secured by any asset other than the specified asset being financed or, in the case of real property or fixtures, including additions and improvements, the real property to which such asset is attached and (3) such Indebtedness shall be incurred within 90 days after such acquisition of such asset by the Issuer or such Restricted Subsidiary or such installation, construction or improvement.

      “Qualified Equity Interests” means Equity Interests of such Person other than Disqualified Equity Interests; provided, however, that of any Person such Equity Interests shall not be deemed Qualified Equity Interests to the extent sold or owed to a Subsidiary of any Person or financed, directly or indirectly, using funds (1) borrowed from such Person or any Subsidiary of such Person until and to the extent such borrowing is repaid or (2) contributed, extended, guaranteed or advanced by such Person or any

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Subsidiary of such Person (including, without limitation, in respect of any employee stock ownership or benefit plan). Unless otherwise specified, Qualified Equity Interests refer to Qualified Equity Interests of the Issuer.

      “Qualified Equity Offering” means the issuance and sale of Qualified Equity Interests of the Issuer to any Persons other than in connection with a transaction constituting a Change of Control; provided, however, that cash proceeds therefrom equal to the redemption price of the Notes to be redeemed are received by the Issuer as a capital contribution immediately prior to such redemption.

      “redeem” means to redeem, repurchase, purchase, defease, retire, discharge or otherwise acquire or retire for value; and “redemption” shall have a correlative meaning.

      “refinance” means to refinance, repay, prepay, replace, renew or refund.

      “Refinancing Indebtedness” means Indebtedness of the Issuer or a Restricted Subsidiary incurred in exchange for, or the proceeds of which are used to redeem or refinance in whole or in part, any Indebtedness of the Issuer or any Restricted Subsidiary (the “Refinanced Indebtedness”); provided, however, that:

      (1) the principal amount (and accreted value, in the case of Indebtedness issued at a discount) of the Refinancing Indebtedness does not exceed the principal amount (and accreted value, as the case may be) of the Refinanced Indebtedness plus the amount of accrued and unpaid interest on the Refinanced Indebtedness, any premium paid to the holders of the Refinanced Indebtedness and reasonable expenses incurred in connection with the incurrence of the Refinancing Indebtedness;

      (2) the obligor of Refinancing Indebtedness does not include any Person (other than the Issuer or any Restricted Subsidiary) that is not an obligor of the Refinanced Indebtedness;

      (3) if the Refinanced Indebtedness was subordinated in right of payment to the Notes or the Note Guarantees, as the case may be, then such Refinancing Indebtedness, by its terms, is subordinate in right of payment to the Notes or the Note Guarantees, as the case may be, at least to the same extent as the Refinanced Indebtedness, and if the Refinanced Indebtedness was pari passu with the Notes or the Note Guarantees, as the case may be, then the Refinancing Indebtedness ranks pari passu with, or is subordinated in right of payment to, the Notes or the Note Guarantees, as the case may be;

      (4) the Refinancing Indebtedness has a final stated maturity either (a) no earlier than the Refinanced Indebtedness being repaid or amended or (b) after the maturity date of the Notes;

      (5) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Notes has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the Weighted Average Life to Maturity of the portion of the Refinanced Indebtedness being repaid that is scheduled to mature on or prior to the maturity date of the Notes; and

      (6) the Refinancing Indebtedness is secured only to the extent, if at all, and by the assets, that the Refinanced Indebtedness being repaid, extended or amended is secured.

      “Registration Rights Agreement” means (i) the Registration Rights Agreement dated as of the Issue Date among the Issuer, the Co-Issuer, the Guarantors and the initial purchasers of the Notes issued on the Issue Date and (ii) any other registration rights agreement entered into in connection with an issuance of Additional Notes in a private offering after the Issue Date.

      “Representative” means any agent or representative in respect of any Designated Senior Debt; provided, however, that if, and for so long as, any Designated Senior Debt lacks such representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt.

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      “Restricted Payment” means any of the following:

      (1) the declaration or payment of any dividend or any other distribution on Equity Interests of the Issuer or any Restricted Subsidiary or any payment made to the direct or indirect holders (in their capacities as such) of Equity Interests of the Issuer or any Restricted Subsidiary, including, without limitation, any payment in connection with any merger or consolidation involving the Issuer, but excluding (a) dividends or distributions payable solely in Qualified Equity Interests or through accretion or accumulation of such dividends on such Equity Interests and (b) in the case of Restricted Subsidiaries, dividends or distributions payable to the Issuer or to a Restricted Subsidiary and pro rata dividends or distributions payable to minority stockholders of any Restricted Subsidiary;

      (2) the redemption of any Equity Interests of the Issuer or any Restricted Subsidiary, including, without limitation, any payment in connection with any merger or consolidation involving the Issuer, but excluding any such Equity Interests held by the Issuer or any Restricted Subsidiary;

      (3) any Investment other than a Permitted Investment; or

      (4) any payment of principal of or redemption prior to the scheduled maturity or prior to any scheduled repayment of principal or sinking fund payment, as the case may be, in respect of Subordinated Indebtedness (other than Subordinated Indebtedness owed to and held by Issuer or any Restricted Subsidiary).

      “Restricted Payments Basket” has the meaning given to such term in the first paragraph of the covenant described under “— Certain Covenants — Limitations on restricted payments.”

      “Restricted Subsidiary” means any Subsidiary of the Issuer other than an Unrestricted Subsidiary.

      “S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., and its successors.

      “Sale and Leaseback Transaction” means, with respect to any Person, an arrangement with any bank, insurance company or other lender or investor or to which such lender or investor is a party, providing for the leasing by such Person of any asset of such Person which has been or is being sold or transferred by such Person to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such asset.

      “SEC” means the U.S. Securities and Exchange Commission.

      “Secretary’s Certificate” means a certificate signed by the Secretary or an Assistant Secretary of the Issuer.

      “Securities Act” means the U.S. Securities Act of 1933, as amended.

      “Senior Debt” means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Issuer or the Co-Issuer, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes.

      Without limiting the generality of the foregoing, “Senior Debt” shall include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of:

      (1) all monetary obligations of every nature under, or with respect to, the Credit Facilities, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities (and guarantees thereof); and

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      (2) all Hedging Obligations in respect of the Credit Facilities;

in each case whether outstanding on the Issue Date or thereafter incurred.

      Notwithstanding the foregoing, “Senior Debt” shall not include:

      (1) any Indebtedness of the Issuer or the Co-Issuer to any of their respective Subsidiaries;

      (2) Indebtedness to, or guaranteed on behalf of, any director, officer or employee of the Issuer or any of its Subsidiaries (including, without limitation, amounts owed for compensation);

      (3) obligations to trade creditors and other amounts incurred (but not under the Credit Facilities) in connection with obtaining goods, materials or services;

      (4) Indebtedness represented by Disqualified Equity Interests;

      (5) any liability for taxes owed or owing by the Issuer or the Co-Issuer;

      (6) that portion of any Indebtedness incurred in violation of the “Limitations on Additional Indebtedness” covenant (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (6) if the holder(s) of such obligation or their representative shall have received an Officers’ Certificate of the Issuer to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit indebtedness, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of the Indenture);

      (7) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Issuer; and

      (8) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Issuer or the Co-Issuer, as the case may be.

      “Significant Subsidiary” means (1) any Restricted Subsidiary that would be a “significant subsidiary” as defined in Regulation S-X promulgated pursuant to the Securities Act as such Regulation is in effect on the Issue Date and (2) any Restricted Subsidiary that, when aggregated with all other Restricted Subsidiaries that are not otherwise Significant Subsidiaries and as to which any event described in clause (7) or (8) under “— Events of Default” has occurred and is continuing, would constitute a Significant Subsidiary under clause (1) of this definition.

      “Subordinated Indebtedness” means Indebtedness of the Issuer or any Restricted Subsidiary that is subordinated in right of payment to the Notes or the Note Guarantees, respectively.

      “Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (a) more than 50% of the total voting power of the Equity Interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Board of Directors thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or a combination thereof) or (b) that is or is required to be included in the consolidated financial statements of such Person in accordance with GAAP. Unless otherwise specified, “Subsidiary” refers to a Subsidiary of the parent.

      “Trust Indenture Act” means the Trust Indenture Act of 1939, as amended.

      “Unit” means a residence, whether single or part of a multifamily building, whether completed or under construction, held by the Issuer or any Restricted Subsidiary for sale in the ordinary course of business.

      “Unrestricted Subsidiary” means (1) any Subsidiary that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Issuer in accordance with the covenant described under “— Certain Covenants — Limitations on designation of unrestricted subsidiaries” and (2) any Subsidiary of an Unrestricted Subsidiary.

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      “U.S. Government Obligations” means direct non-callable obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged.

      “Voting Stock” with respect to any Person, means securities of any class of Equity Interests of such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock or other relevant equity interest has voting power by reason of any contingency) to vote in the election of members of the Board of Directors of such Person.

      “Weighted Average Life to Maturity” when applied to any Indebtedness at any date, means the number of years obtained by dividing (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment by (2) the then outstanding principal amount of such Indebtedness.

      “Wholly Owned Restricted Subsidiary” means a Restricted Subsidiary of which 100% of the Equity Interests (except for directors’ qualifying shares or certain minority interests owned by other Persons solely due to local law requirements that there be more than one stockholder, but which interest is not in excess of what is required for such purpose) are owned directly by the Issuer or through one or more Wholly Owned Restricted Subsidiaries.

BOOK-ENTRY, DELIVERY AND FORM OF NOTES

      The new notes will be represented by one or more global notes (the “Global Notes”) in definitive form. The Global Notes will be deposited with, or on behalf of, the Depository Trust Company (“DTC”) and registered in the name of Cede & Co., as nominee of DTC (such nominee being referred to herein as the “Global Note Holder”). DTC will maintain the Notes in denominations of $1,000 and integral multiples thereof through its book-entry facilities.

      DTC has advised the Issuer as follows:

      DTC is a limited-purpose trust company that was created to hold securities for its participating organizations, including the Euroclear System and Clearstream Banking, Société Anonyme, Luxembourg (collectively, the “Participants” or the “Depositary’s Participants”), and to facilitate the clearance and settlement of transactions in these securities between Participants through electronic book-entry changes in accounts of its Participants. The Depositary’s Participants include securities brokers and dealers (including the Initial Purchasers), banks and trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the “Indirect Participants” or the “Depositary’s Indirect Participants”) that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Depositary’s Participants or the Depositary’s Indirect Participants. Pursuant to procedures established by DTC, ownership of the Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the interests of the Depositary’s Participants) and the records of the Depositary’s Participants (with respect to the interests of the Depositary’s Indirect Participants).

      The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer the Notes will be limited to such extent.

      So long as the Global Note Holder is the registered owner of any Notes, the Global Note Holder will be considered the sole holder of outstanding Notes represented by such Global Notes under the Indenture. Except as provided below, owners of Notes will not be entitled to have Notes registered in their names and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions, or approvals to the Trustee thereunder. None of the Issuer, the Co-Issuer, the Guarantors or the Trustee will have any

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responsibility or liability for any aspect of the records relating to or payments made on account of Notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to such Notes.

      Payments in respect of the principal of, premium, if any, and interest on any Notes registered in the name of a Global Note Holder on the applicable record date will be payable by the Trustee to or at the direction of such Global Note Holder in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Issuer and the Co-Issuer and the Trustee may treat the persons in whose names any Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, none of the Issuer, the Co-Issuer or the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Notes (including principal, premium, if any, and interest). The Issuer believes, however, that it is currently the policy of DTC to immediately credit the accounts of the relevant Participants with such payments, in amounts proportionate to their respective beneficial interests in the relevant security as shown on the records of DTC. Payments by the Depositary’s Participants and the Depositary’s Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practice and will be the responsibility of the Depositary’s Participants or the Depositary’s Indirect Participants.

      If an Event of Default occurs, any person having a beneficial interest in the Global Notes may, through the Depositary’s Participants or the Depositary’s Indirect Participants upon request to the Trustee and confirmation of such beneficial interest by the Depositary or its Participants or Indirect Participants, exchange such beneficial interest for Notes in definitive form. Upon any such issuance, the Trustee is required to register such Notes in the name of and cause the same to be delivered to, such person or persons (or the nominee of any thereof). Such Notes would be issued in fully registered form and would be subject to the legal requirements described in this prospectus under the caption “Notice to Investor.”

      None of the Issuer, the Co-Issuer or the Trustee will be liable for any delay by the Global Note Holder or DTC in identifying the beneficial owners of Notes and the Issuer, the Co-Issuer and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note Holder or DTC for all purposes.

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Material United States federal income tax considerations

GENERAL

      The following is a general discussion of the material United States federal income tax consequences of the exchange of original notes for new notes and the purchase, ownership and disposition of the new notes to United States holders and, in certain circumstances, non-United States holders.

      This summary deals only with notes held as capital assets within the meaning of section 1221 of the Internal Revenue Code of 1986, as amended, hereafter referred to as the Code, and does not deal with special situations, such as those of broker dealers, tax-exempt organizations, partnerships or other pass through entities or investors in such entities, individual retirement accounts and other tax deferred accounts, financial institutions, insurance companies, or persons holding the notes as part of a hedging or conversion transaction or straddle, or a constructive sale, or persons who have ceased to be United States citizens or to be taxed as resident aliens or persons whose functional currency is not the U.S. dollar. Furthermore, the discussion below is based upon the provisions of the Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be subject to change, possibly with retroactive effect, so as to result in United States federal income tax consequences different from those discussed below. In addition, except as otherwise indicated, the following does not consider the effect of any applicable foreign, state, local or other tax laws or estate or gift tax considerations.

      As used herein, a “United States holder” is a beneficial owner of a note that is, for United States federal income tax purposes,

•  an individual who is a citizen or resident of the United States,

•  a corporation or other entity treated as a corporation created or organized in or under the laws of the United States or any political subdivision thereof,

•  an estate the income of which is subject to United States federal income taxation regardless of its source,

•  a trust if a United States court is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, and

•  a certain type of trust in existence on August 20, 1996, which was treated as a United States person under the Code in effect immediately prior to such date and which has made a valid election to be treated as a United States person under the Code.

      A “non-United States holder” is a beneficial owner of a note who is not a United States holder.

      If a partnership holds notes, the tax treatment of a partner generally will depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding outstanding notes, we suggest that you consult your tax advisor.

      Persons considering participating in the exchange offer, or considering the purchase, ownership or disposition of notes should consult their own tax advisors concerning the United States federal income tax consequences in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.

EXCHANGE OFFER

      Pursuant to this exchange offer, holders are entitled to exchange the original notes for new notes that will be substantially identical in all material respects to the original notes, except that the new notes will be registered and therefore generally will not be subject to transfer restrictions. Participation in the exchange offer will not result in a taxable exchange to the Company or you. Accordingly,

•  no gain or loss will be realized by you upon receipt of a new note,

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•  the holding period of a new note will include the holding period of the original note exchanged therefor, and

•  the adjusted tax basis of the new notes will be the same as the adjusted tax basis of the original notes exchanged at the time of the exchange.

UNITED STATES HOLDERS

Payments of Interest on Notes

      Interest on the notes will be taxable to a United States holder as ordinary income at the time it is paid or accrued in accordance with the United States holder’s regular method of accounting for tax purposes. The original notes were not, and the new notes will not be issued with original issue discount and the remainder of this section so assumes.

Sale, Exchange, Redemption or Retirement of the Notes

      Upon the sale, exchange, redemption, retirement or other taxable disposition of a note, a United States holder will generally recognize gain or loss in an amount equal to the difference between:

•  the amount of cash and the fair market value of other property received in exchange therefor and

•  the holder’s adjusted tax basis in such note.

      Amounts attributable to accrued but unpaid interest on the notes will be treated as ordinary interest income as described above. A United States holder’s adjusted tax basis in a note generally will equal the purchase price paid by the holder for the note.

      Gain or loss realized on the sale, exchange, retirement or other taxable disposition of a note will be capital gain or loss and will be long-term capital gain or loss if at the time of sale, exchange, redemption, retirement or other taxable disposition, the note has been held by a United States holder for more than twelve months. The current maximum rate of tax on long-term capital gains with respect to notes held by an individual is 15%. The deductibility of capital losses is subject to certain limitations.

Information Reporting and Backup Withholding

      Backup withholding and information reporting requirements may apply to certain payments of interest on a note and to the proceeds of the sale, redemption or other disposition of a note. We, our agent, a broker, the trustee or the paying agent, as the case may be, will be required to withhold from any payment that is subject to backup withholding a backup withholding tax if a United States holder, other than an exempt recipient such as a corporation, fails to furnish its taxpayer identification number, certify that such number is correct, certify that such holder is not subject to withholding or otherwise comply with the applicable backup withholding rules. Pursuant to legislation enacted in 2003, the backup withholding rate is 28%. This legislation is scheduled to expire and the backup withholding rate will be 31% for amounts paid after December 31, 2010 unless Congress enacts legislation providing otherwise. A United States holder will generally be eligible for an exemption from backup withholding by providing a properly completed Internal Revenue Service Form W-9 to the applicable payor. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a holder of the notes will be allowed as a refund or a credit against such holder’s United States federal income tax liability, provided the required information is furnished to the Internal Revenue Service.

NON-UNITED STATES HOLDERS

United States Federal Withholding Tax

      The payment to a non-United States holder of interest on a note that is not effectively connected with such holder’s conduct of a United States trade or business generally will not be subject to United States federal withholding tax, pursuant to the “portfolio interest exception,” provided that

•  the non-United States holder does not directly, indirectly or constructively own 10% or more of the total combined voting power of all of our classes of corporate stock,

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•  the non-United States holder is not a controlled foreign corporation that is related to us through stock ownership within the meaning of the Code, and

•  the non-United States holder is not a bank whose receipt of interest on a note is described in section 881(c)(3)(A) of the Code;

and provided that either:

•  the beneficial owner of the note certifies to us or our paying agent, under penalties of perjury, that it is not a United States holder and provides its name and address on an Internal Revenue Service Form W-8BEN, or a suitable substitute form, or

•  a securities clearing organization, bank or other financial institution that holds the notes on behalf of such non-United States holder in the ordinary course of its trade or business certifies to us or our paying agent, under penalties of perjury, that such a Form W-8BEN or suitable substitute form, has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payor with a copy thereof.

      Alternative methods may be applicable for satisfying the certification requirement described above.

      If a non-United States holder cannot satisfy the requirements of the portfolio interest exception described above, payments of interest made to such non-United States holder will be subject to a 30% withholding tax, unless the beneficial owner of the note provides us or our paying agent with a properly executed:

•  Form W-8BEN or successor form (or a suitable substitute form), claiming an exemption from or reduction in the rate of withholding under the benefit of an applicable income tax treaty, or

•  Form W-8ECI, or successor form (or a suitable substitute form), stating that interest paid on the note is not subject to withholding tax because it is effectively connected with the beneficial owner’s conduct of a trade or business in the United States.

      In addition, the non-United States holder may under certain circumstances be required to obtain a United States taxpayer identification number and make certain certifications to us. Non-United States holders should consult their tax advisors regarding the effect, if any, of the withholding regulations.

United States Federal Income Tax

      Except for the possible application of United States federal withholding tax discussed above, or backup withholding tax discussed below, a non-United States holder generally will not be subject to United States federal income tax on payments of interest and principal on the notes, or on any gain realized upon the sale, exchange, redemption or retirement of a note, unless:

•  such payments and gain are effectively connected with the conduct by such holder of a trade or business in the United States, and, if required by an applicable income tax treaty as a condition for subjecting the non- United States holder to United States taxation on a net income basis, the gain is attributable to a permanent establishment maintained in the United States, or

•  in the case of gains derived by an individual, such individual is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met.

      If a non-United States holder is engaged in a trade or business in the United States and interest on the note or gain realized upon disposition of a note is effectively connected with the conduct of such trade or business, such non-United States holder will be subject to United States federal income tax, in the same manner as if it were a United States holder. In addition, if such non-United States holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits (which may include both any interest on a note and any gain on a disposition of a note), subject to adjustment, for that taxable year unless it qualifies for a lower rate under an applicable income tax treaty. If a non United States holder is subject to the 183 day rule described above, such

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holder generally will be subject to United States federal income tax at a rate of 30% (or the lower applicable treaty rate) on the amount by which capital gains allocable to United States sources exceed capital losses allocable to United States sources.

      Special rules may apply to certain non-United States holders, such as “controlled foreign corporations,” “passive foreign investment companies” and “foreign personal holding companies,” that are subject to special treatment under the Code. Such entities should consult their own tax advisors to determine the United States federal, state, local and other tax consequences that may be relevant to them or to their shareholders.

INFORMATION REPORTING AND BACKUP WITHHOLDING

      We must report annually to the Internal Revenue Service and to each non-United States holder any interest that is subject to withholding, or that is exempt from United States withholding tax pursuant to a tax treaty, or interest that is exempt from United States withholding tax under the portfolio interest exception. Copies of these information returns may also be made available under the provisions of a specific tax treaty or agreement with the tax authorities of the country in which the non-United States holder resides.

      Non-United States holders may be subject to backup withholding and additional information reporting requirements. However, backup withholding and additional information reporting requirements generally do not apply to payments of interest made by us or a paying agent to non-United States holders if the certification described above under “United States Federal Withholding Tax” is received.

      If the foreign office of a foreign “broker,” as defined in the applicable Treasury regulations, pays the proceeds of a sale, redemption or other disposition of a note to the seller thereof outside the United States, backup withholding and information reporting requirements will generally not apply. However, information reporting requirements, but not backup withholding, will generally apply to a payment by a foreign office of a broker that is a United States person or a “United States related person,” unless the broker has documentary evidence in its records that the holder is a non-United States holder and certain other conditions are met or the holder otherwise establishes an exemption. For this purpose, a “United States related person” is:

•  a foreign person that derives 50% or more of its gross income from all sources in specified periods from activities that are effectively connected with the conduct of a trade or business in the United States,

•  a “controlled foreign corporation” (a foreign corporation controlled by certain United States shareholders), or

•  a foreign partnership, if at any time during its tax year, one or more of its partners are United States persons, as defined in the applicable Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or if at any time during its taxable year, such foreign partnership is engaged in a trade or business in the United States.

      Payment by a United States office of any United States or foreign broker is generally subject to both backup withholding and information reporting unless the holder certifies under penalties of perjury that it is a non-United States holder or otherwise establishes an exemption.

      Pursuant to legislation enacted in 2003, the backup withholding rate is 28%. This legislation is scheduled to expire and the backup withholding rate will be 31% for amounts paid after December 31, 2010 unless Congress enacts legislation providing otherwise.

      Any amounts withheld under the backup withholding rules from a payment to a holder of the notes may be allowed as a refund or a credit against such holder’s United States federal income tax liability, provided that the required information is timely furnished to the Internal Revenue Service.

      Non-United States holders should consult their tax advisers concerning the possible application of Treasury regulations and income tax treaties to any payments made on or with respect to the notes.

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Plan of distribution

       If you wish to exchange your original notes in the exchange offer, you will be required to make representations to us as described in “The exchange offer — Exchange Offer Procedures” in this prospectus and in the letter of transmittal. In addition, each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for original notes where such original notes were acquired as a result of market-making activities or other trading activities. We have agreed to use our reasonable best efforts to make this prospectus, as amended or supplemented, available to any broker-dealer for a period of 180 days after the date of this prospectus for use in connection with any such resale.

      We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit on any such resale of new notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

      A broker-dealer that acquired original notes directly from us cannot exchange the original notes in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the new notes cannot rely on the no-action letters of the staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

      For a period of 180 days after the date of this prospectus, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, including the expenses of one counsel for the holders of the original notes, other than commissions or concessions of any brokers or dealers, and will indemnify the holders of the original notes, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act.

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Legal matters

       The enforceability of the new notes and the guarantees offered in this prospectus, the binding obligations of the Company, the Co-Issuer and the Subsidiary Guarantors pursuant to such notes and guarantees and other matters will be passed upon for us by Paul, Hastings, Janofsky & Walker LLP. Certain legal matters as to the Company and the guarantees given by the Subsidiary Guarantors will be passed upon by the following law firms: Lionel, Sawyer & Collins; Hagen & Parsons, P.C.; Akerman Senterfitt; Holley, Albertson & Polk P.C.; and Fennemore Craig, P.C.

Experts

       The consolidated financial statements of Ashton Woods USA L.L.C. and subsidiaries as of May 31, 2005 and 2004, and for each of the years in the three-year period ended May 31, 2005 have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

Where you can find more information

       We have filed with the Securities and Exchange Commission, or SEC, a registration statement on Form S-4 (SEC File No. 333-129906). This prospectus, which forms part of the registration statement, does not contain all the information included in the registration statement. For further information about us and the securities offered in this prospectus, you should refer to the registration statement and exhibits. A copy of the registration statement and the exhibits and schedules filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains an Internet web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov.

      Upon completion of this offering, we will file periodic and current reports and other information with the SEC. Such periodic and current reports and other information will be available for inspection and copying at the public reference room and web site of the SEC referred to above.

      We maintain an internet site at www.ashtonwoods.com which contains information concerning us and our subsidiaries. The information contained on our internet site and those of our subsidiaries is not incorporated by reference in this prospectus and should not be considered a part of this prospectus.

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Index to financial statements

Consolidated Financial Statements
	Report of Independent Registered Public Accounting Firm	F-2
	Consolidated Balance Sheets as of May 31, 2005 and May 31, 2004	F-3
	Consolidated Statements of Earnings for the years ended May 31, 2005, 2004 and 2003	F-4
	Consolidated Statements of Members’ Equity for the years ended May 31, 2005, 2004 and 2003	F-5
	Consolidated Statements of Cash Flows for the years ended May 31, 2005, 2004 and 2003	F-6
	Notes to Consolidated Financial Statements	F-7
Unaudited Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of November 30, 2005 and May 31, 2005	F-15
	Condensed Consolidated Statements of Earnings for the three- and six-month periods ended November 30, 2005 and 2004	F-16
	Condensed Consolidated Statements of Cash Flows for three- and six-month periods ended November 30, 2005 and 2004	F-17
	Notes to Condensed Consolidated Financial Statements	F-18

F-1

Report of Independent Registered Public Accounting Firm

The Members

Ashton Woods USA L.L.C.:

      We have audited the accompanying consolidated balance sheets of Ashton Woods USA L.L.C. and subsidiaries as of May 31, 2005 and 2004, and the related consolidated statements of earnings, members’ equity, and cash flows for each of the years in the three-year period ended May 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ashton Woods USA L.L.C., and subsidiaries as of May 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended May 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Atlanta, Georgia

July 20, 2005

F-2

Ashton Woods USA L.L.C.

CONSOLIDATED BALANCE SHEETS

		May 31,
		2005		2004
		(In thousands)
ASSETS
Cash and cash equivalents		$	105	$	625
Inventory
	Construction in progress and finished homes		126,010		106,651
	Land and land under development		129,983		99,033
Real estate not owned			14,945		8,226
Property and equipment, net			5,620		3,340
Accounts receivable			10,649		5,854
Restricted cash			104		1,846
Other assets			9,998		6,694
Investments in unconsolidated entities			12,029		8,330
		$	309,443	$	240,599
LIABILITIES AND MEMBERS’ EQUITY
Liabilities
	Notes payable	$	96,789	$	86,159
	Related party note		13,746		3,409
	Customer deposits		12,290		6,596
	Liabilities related to real estate not owned		12,551		6,840
	Accounts payable and accruals		42,476		32,156
Total liabilities			177,852		135,160
Minority interests in consolidated limited partnerships			—		242
Minority interests in real estate not owned			1,993		1,386
Members’ equity			129,598		103,811
		$	309,443	$	240,599

See Accompanying Notes to Consolidated Financial Statements.

F-3

Ashton Woods USA L.L.C.

CONSOLIDATED STATEMENTS OF EARNINGS

		Years Ended May 31,
		2005			2004			2003
		(In thousands)
Revenues
	Home sales	$	461,322		$	377,265		$	287,178
	Land sales		37,005			34,561			19,705
	Other		1,279			974			703
			499,606			412,800			307,586
Cost of sales
	Home sales		364,469			299,940			237,427
	Land sales		17,183			23,249			15,920
			381,652			323,189			253,347
Gross profit
	Home sales		96,853			77,325			49,751
	Land sales		19,822			11,312			3,785
	Other		1,279			974			703
			117,954			89,611			54,239
Expenses
	Sales and marketing		26,503			23,809			18,730
	General and administrative		27,725			19,184			15,766
	Related party expense		1,136			1,062			794
	Franchise taxes		439			361			389
	Depreciation and amortization		3,870			3,915			3,574
			59,673			48,331			39,253
Earnings in unconsolidated entities			1,571			1,259			1,523
Minority interest in earnings			(398	)		(112	)		(12	)
Net income		$	59,454		$	42,427		$	16,497

See Accompanying Notes to Consolidated Financial Statements.

F-4

Ashton Woods USA L.L.C.

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

	(In thousands)
BALANCE at May 31, 2002	$	68,550
Distributions		(6,633	)
Net income		16,497
BALANCE at May 31, 2003		78,414
Distributions		(17,030	)
Net income		42,427
BALANCE at May 31, 2004		103,811
Distributions		(33,667	)
Net income		59,454
BALANCE at May 31, 2005	$	129,598

See Accompanying Notes to Consolidated Financial Statements.

F-5

Ashton Woods USA L.L.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended May 31,
			2005			2004			2003
			(In thousands)
Cash flow from operating activities:
	Net income		$	59,454		$	42,427		$	16,497
	Adjustments to reconcile net income to net cash provided by operating activities:
		Earnings in unconsolidated entities		(1,571	)		(1,259	)		(1,523	)
		Investment with related party in land held for resale		6,111			(6,111	)		—
		Distributions from unconsolidated entities		2,206			1,468			1,463
		Depreciation and amortization		3,870			3,915			3,574
		Minority interest in earnings of consolidated limited partnership		398			112			12
	Changes in operating assets and liabilities:
		Inventory		(50,309	)		(8,763	)		970
		Accounts receivable		(4,795	)		1,560			(4,739	)
		Restricted cash		1,742			(631	)		(350	)
		Other assets		(2,009	)		(3,764	)		(1,440	)
		Accounts payable and accruals		10,320			10,240			(1,939	)
		Customer deposits		5,694			2,136			1,264
Net cash provided by operating activities				31,111			41,330			13,789
Cash flows from investing activities:
	Investments in unconsolidated entities			(10,445	)		(1,610	)		(166	)
	Investments in real estate not owned			(401	)		—			—
	Additions to property and equipment			(6,150	)		(4,341	)		(3,242	)
Net cash used in investing activities				(16,996	)		(5,951	)		(3,408	)
Cash flows from financing activities:
	Proceeds from notes payable			75,936			63,834			31,039
	Repayments of notes payable			(65,307	)		(64,299	)		(34,323	)
	Proceeds from related party note			35,004			14,410			7,384
	Repayments of related party note			(24,666	)		(33,095	)		(12,893	)
	Debt issuance costs			(1,295	)		—			—
	Minority interest distributions			(640	)		—			—
	Members’ distributions			(33,667	)		(17,030	)		(6,633	)
Net cash used in financing activities				(14,635	)		(36,180	)		(15,426	)
(Decrease)/increase in cash				(520	)		(801	)		(5,045	)
Cash and cash equivalents, beginning of year				625			1,426			6,471
Cash and cash equivalents, end of year			$	105		$	625		$	1,426
Supplemental cash flow information:
	Cash paid for franchise taxes		$	397		$	379		$	391

See Accompanying Notes to Consolidated Financial Statements.

F-6

Ashton Woods USA L.L.C.

Notes to consolidated financial statements

Note 1 — Summary of Significant Accounting Policies

Organization

      Ashton Woods USA L.L.C. (the “Company”), operating as Ashton Woods Homes, is a limited liability company formed on February 6, 1997 for a period of duration ending no later than February 1, 2037. The Company acquires and develops land for residential purposes and designs, sells and builds residential homes on such land in five markets located in Georgia, Texas, Florida and Arizona. The Company also holds an investment in an unconsolidated entity that provides mortgage origination for homebuyers through Ashton Woods Mortgage, LLC (“Ashton Woods Mortgage”). In addition, the Company provides title services to its buyers in Texas through two unconsolidated entities.

Presentation

      The consolidated financial statements include the accounts of the Company, and its wholly-owned, majority-owned and controlled subsidiaries, as well as certain variable interest entities required to be consolidated pursuant to Financial Interpretation No. 46R (“FIN 46R”) issued by the Financial Accounting Standards Board (FASB). All intercompany balances and transactions have been eliminated in consolidation.

      The Company’s homebuilding operations are conducted across several markets in the United States have similar characteristics; therefore, they have been reported as one segment — the homebuilding segment.

      The Company’s balance sheet presentation is unclassified due to the fact that certain assets and liabilities have both short and long-term characteristics.

Cash and Cash Equivalents

      The Company considers all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents.

Restricted Cash

      Restricted cash represents funds related to the sale of certain of the Company’s land and lots, which are held in escrow until land development is complete, at which time the funds are released to the Company.

Inventory

      Inventory consists of completed homes and homes under construction, finished lots, land under development and land held for development. Costs are capitalized to inventory during land development and home construction, including direct home construction costs, indirect overhead costs of construction associated with the construction of homes, interest and real estate taxes related to property under development and construction. Cost of sales of homes closed consists of the direct construction costs of each home, indirect overhead costs of construction associated with the construction of homes, land acquisition and land development costs allocated to each home, related interest and real estate taxes, and an estimate of future warranty and related closing costs for the homes closed. Land acquisition costs, land development costs, indirect home development costs, indirect overhead costs of construction and interest and taxes related to property under development and construction are accumulated by specific area and allocated to various lots or housing units using specific identification and allocation based upon the relative sales value, unit or area methods. Direct construction costs are assigned to housing units based on specific identification.

F-7

Ashton Woods USA L.L.C.

Notes to consolidated financial statements — (Continued)

      Finished inventories and land held for sale are stated at the lower of accumulated cost or fair value less cost to sell. Homebuilding projects and land held for development and construction are stated at cost unless facts and circumstances indicate that such cost would not be recovered from the undiscounted cash flows generated by future disposition, after considering estimated cash flows associated with all future expenditures to develop the assets, including interest payments that will be capitalized as part of the cost of the asset. In this instance, such inventories are written down to estimated fair value that is determined based on management’s estimate of future revenues and costs. Due to uncertainties in the estimation process, it is possible that actual results could differ. The Company continues to evaluate the carrying value of its inventory, believes that the existing estimation process fairly presents its inventory balances and does not anticipate the process to materially change in the future.

      Deposits paid related to land option purchase agreements and contracts to purchase land are capitalized when paid and classified as other assets until the related land is acquired. The deposits are then transferred to inventory at the time the land is acquired. Deposits are charged to expense if the land acquisition is no longer considered probable.

Real Estate Not Owned

      Consolidated real estate not owned represents the fair value of land under option purchase agreements when consolidated pursuant to FIN 46R.

Investments in Unconsolidated Entities

      The Company participates in a number of land development entities in which it has less than a controlling interest. These land development entities are typically entered into with developers, other homebuilders and related parties to develop finished lots for sale to the members of the entities and other third parties. The Company accounts for its interest in these entities under the equity method. The Company’s share of profits from these entities are deferred and treated as a reduction of the cost basis of land purchased from the entity.

      The Company’s investments in Ashton Woods Mortgage and the title services entities are also accounted for under the equity method, as the Company does not have a controlling interest. Under the equity method, the Company’s share of the unconsolidated entities’ earnings or loss is recognized as earned.

Property and Equipment

      Property and equipment at May 31, 2005 and 2004, consists of approximately $1.0 million and $0.3 million, respectively of computer, office equipment and leasehold improvements and approximately $4.6 million and $3.0 million, respectively of sales office and model home furnishings, and is stated at cost less accumulated depreciation and amortization. Accumulated depreciation and amortization related to these assets amounted to approximately $23.6 million and $19.7 million at May 31, 2005 and 2004, respectively. Depreciation and amortization generally is recorded using the straight-line method over the estimated useful lives of the assets, which range from 2 years to 5 years, and depreciable lives for leasehold improvements typically reflect the life of the lease. Depreciation expense was $3.9 million, $3.9 million and $3.6 million in fiscal 2005, 2004 and 2003, respectively. Repairs and maintenance costs are expensed as incurred.

Revenue Recognition

      Homebuilding and lot sale revenue are recognized at the time of the closing of a sale, when title to and possession of the property are transferred to the buyer. Sales commissions are included in sales and

F-8

Ashton Woods USA L.L.C.

Notes to consolidated financial statements — (Continued)

marketing expenses. Virtually all homebuilding, land and lot sales revenues are received in cash within two days of closing.

Warranty Costs

      The Company provides its homebuyers with limited warranties that generally provide for ten years of structural coverage, two years of coverage for plumbing, electrical and heating, ventilation and air conditioning systems and one year of coverage for workmanship and materials. Warranty liabilities are initially established on a per home basis by charging cost of sales and establishing a warranty liability for each home delivered to cover expected costs of materials and labor during the warranty period. The amounts accrued are based on management’s estimate of expected warranty-related costs under all unexpired warranty obligation periods. The Company’s warranty liability is based upon historical warranty cost experience in each market in which it operates and is adjusted as appropriate to reflect qualitative risks associated with the types of homes built and the geographic areas in which they are built. The following table sets forth the Company’s warranty liability, which is included in accounts payable and accruals on the consolidated balance sheets:

      Years ended May 31, (in thousands)

	2005			2004			2003
Warranty liability, beginning of period	$	2,670		$	1,768		$	1,400
Costs accrued during year		4,526			3,177			3,067
Incurred costs during year		(4,121	)		(2,275	)		(2,699	)
Warranty liability, end of period	$	3,075		$	2,670		$	1,768

Advertising Costs

      The Company expenses advertising costs as they are incurred. Advertising expense was approximately $2.8 million, $2.4 million and $2.2 million in fiscal 2005, 2004 and 2003, respectively.

Minority Interest

      The Company had a controlling interest in a limited partnership for land acquisition and development in Orlando, Florida. Accordingly, the financial position of this partnership and results of operations are consolidated in the Company’s consolidated financial statements and the other partner’s share of earnings of the limited partnership is recorded as minority interest. During fiscal year 2005, the Company acquired the minority share in this limited partnership.

Provision for Income Taxes

      The Company operates as a limited liability company. Accordingly, the Company incurs no liability for federal or state income taxes, other than franchise taxes, as these taxes are passed through to the members.

Use of Estimates

      The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

F-9

Ashton Woods USA L.L.C.

Notes to consolidated financial statements — (Continued)

Reclassifications

      Certain prior year balances have been reclassified to conform to the current year presentation.

Note 2 — Inventory

      Inventory consists of the following as of May 31 (in thousands):

	2005		2004
Homes under construction	$	126,010	$	106,651
Finished lots		40,216		47,740
Land under development		70,104		23,367
Land held for development		19,663		27,926
	$	255,993	$	205,684

      The Company capitalizes interest costs to inventory during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the homebuyer. The following table summarizes the Company’s interest costs incurred, capitalized and charged to cost of sales during the years ended May 31, (in thousands):

	2005			2004			2003
Capitalized interest, beginning of year	$	3,123		$	4,013		$	5,677
Interest incurred		4,840			4,932			5,796
Interest amortized to cost of sales		(4,790	)		(5,822	)		(7,460	)
Capitalized interest, end of year	$	3,173		$	3,123		$	4,013

Note 3 — Consolidated Land Inventory Not Owned

      FIN 46R requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46R, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46R applied immediately to variable interest entities created after December 31, 2003, and with respect to variable interest entities created before January 1, 2004, FIN 46R application was deferred and not required to be applied until the first annual period beginning after December 15, 2004.

      In the ordinary course of its business, the Company enters into land and lot option purchase contracts with unaffiliated entities in order to procure land or lots for the construction of homes. Under such option purchase contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the Company’s option deposits are non-refundable. Certain non-refundable deposits are deemed to create a variable interest in a variable interest entity under the requirements of FIN 46R. As such, certain of the Company’s option purchase contracts result in the acquisition of a variable interest in the entity holding the land parcel under option.

      In applying the provisions of FIN 46R, the Company evaluates those land and lot option purchase contracts with variable interest entities to determine whether the Company is the primary beneficiary based upon analysis of the variability of the expected gains and losses of the entity. Based on this

F-10

Ashton Woods USA L.L.C.

Notes to consolidated financial statements — (Continued)

evaluation, if the Company is the primary beneficiary of an entity with which the Company has entered into a land or lot option purchase contract, the variable interest entity is consolidated.

      The Company had the right to acquire 717 lots at an aggregate purchase price of approximately $25.5 million from unaffiliated third parties of which 367 lots remain to be purchased at an aggregate purchase price of $15.2 million. Deposits relating to these option purchase agreements totaled $0.6 million and $2.8 million at May 31, 2005 and 2004, respectively; these amounts are capitalized in other assets. The Company has determined, based on its evaluation of the provisions of FIN 46R, all lot option purchase contracts with unaffiliated third parties outstanding as of May 31, 2005, do not require consolidation as the Company’s interests do not qualify it as the primary beneficiary.

      The Company has entered into several lot option purchase agreements with certain related parties for the acquisition of 386 finished lots, of which 164 finished lots remain to be purchased as of May 31, 2005 for a remaining aggregate purchase price of approximately $14.5 million which is pursuant to specific performance requirements. These option purchase agreements were entered into prior to January 1, 2004 and, while qualifying as variable interest entities are not required to be consolidated under FIN 46R. These entities have obtained secured acquisition and development financing which is supported by specific performance requirements under the lot option purchase agreements. The Company had $1.7 million and $0.4 million at May 31, 2005 and 2004, respectively, of non-refundable deposits securing these lot options.

      The Company has three lot purchase contracts with certain related parties to acquire 611 finished lots at an aggregate price of approximately $33.0 million, which have created variable interests and of which 504 finished lots remain to be acquired for an aggregate price of $27.5 million. In addition, the Company has provided various specific performance guarantees under one of the option purchase contracts, which has been deemed as providing subordinated financial support to the entity. The Company has 49 finished lots remaining to be purchased under its specific performance obligations for an aggregate purchase price of $2.4 million. While the Company owns no equity interest in the entities, it must consolidate pursuant to FIN 46R. The consolidation of these variable interest entities added $14.9 million, $12.6 million and $2.0 million in real estate not owned, liabilities related to real estate not owned and minority interests in real estate not owned, respectively, to the Company’s balance sheet at May 31, 2005 and added $8.2 million, $6.9 million, and $1.4 million in real estate not owned, liabilities related to real estate not owned and minority interests in real estate not owned, respectively, to the Company’s balance sheet at May 31, 2004.

Note 4 — Investments in Unconsolidated Entities

      The Company enters into land development joint ventures from time to time as a means of accessing larger parcels of land and lot positions, managing its risk profile and leveraging its capital base. At May 31, 2005 and 2004, the Company had equity investments of 50% or less and did not have a controlling interest in these unconsolidated entities. The Company’s partners are generally unrelated homebuilders, land developers or other real estate entities. These unconsolidated entities follow accounting principles generally accepted in the United States of America and the partners share in their profits and losses generally in accordance with their ownership interests.

      The Company and/or its entity partners enter into option purchase agreements under which they can purchase finished lots held by the unconsolidated entity. Option prices are generally negotiated prices that approximate fair value when the option contract is signed. The Company’s share of the entity’s earnings is deferred until homes related to the lots purchased are delivered and title passes to a homebuyer.

      The land development entities with unrelated parties typically obtain secured acquisition and development financing. As of May 31, 2005, the Company has entered into lot option purchase agreements with four unconsolidated entities for the purchase of 941 lots, of which 797 remain to be purchased with

F-11

Ashton Woods USA L.L.C.

Notes to consolidated financial statements — (Continued)

an aggregate remaining purchase price of $29.5 million. These unconsolidated entities had borrowings outstanding totaling $11.3 million and $10.5 million at May 31, 2005 and 2004, respectively. In some instances, the entity partners have provided varying levels of guarantees of debt of the unconsolidated entities. These repayment guarantees require the Company to repay its share of the debt of unconsolidated entities in the event the entity defaults on its obligations under the borrowings. The Company had repayment guarantees of $4.2 million and $2.6 million at May 31, 2005 and 2004, respectively.

      Summarized condensed financial information related to unconsolidated entities that are accounted for using the equity method at May 31 was as follows (in thousands):

	2005		2004
Assets:
Real estate	$	52,686	$	25,788
Cash		1,668		770
Mortgage loans held for sale		6,870		4,009
Note receivable		—		720
Other		470		224
	$	61,694	$	31,511
Liabilities and Equity:
Notes payable and accrued liabilities	$	22,230	$	12,730
Equity		39,464		18,781
	$	61,694	$	31,511
Revenues	$	13,648	$	8,815
Expenses		9,672		6,086
Net earnings	$	3,976	$	2,729

Note 5 — Notes Payable

      The Company’s notes payable at May 31, consist of the following (in thousands):

	2005		2004
Unsecured revolving credit facility	$	92,089	$	79,936
Secured notes		4,700		6,223
Total notes payable	$	96,789	$	86,159

      In January 2005, the Company entered into a new four-year $225 million unsecured revolving credit facility. This facility included an additional $75 million accordion feature that permits, under certain conditions, an increase in the facility. Borrowing capacity of this facility is reduced by the amount of letters of credit outstanding. At May 31, 2005, the Company had available borrowing capacity from this facility of $101.5 million as determined by borrowing base limitations defined by the agreement. The facility is guaranteed by all of the Company’s wholly-owned subsidiaries and all the holders of our membership interests and contains covenants which requires the maintenance of certain levels of tangible net worth and compliance with certain minimum financial ratios, places limitations on the payment of dividends and redemptions of equity, and limits the incurrence of additional indebtedness, asset dispositions, mergers, certain investments and the creation of liens, among other items. As of May 31, 2005, the borrowings under the facility bear daily interest at rates based upon the London Interbank

F-12

Ashton Woods USA L.L.C.

Notes to consolidated financial statements — (Continued)

Offered Rate (LIBOR) plus a spread based on the Company’s ratio of debt to tangible net worth. In addition to the stated interest rates, the revolving credit facility requires the Company to pay certain fees. The effective interest rate of the unsecured bank debt at May 31, 2005 was 4.58%. As of and for the fiscal year ended May 31, 2005, the Company was in compliance with the covenants of this facility.

      Prior to January 2005, the Company had an unsecured revolving credit facility. This facility’s aggregate commitment was $200 million with a maturity of November 2006 with an option to extend for one additional year. The facility contained certain covenants, which required maintenance of certain levels of adjusted net worth, compliance with certain minimum financial ratios, placed limitations on the distribution of net income and limited certain investments, the incurrence of additional indebtedness, and asset dispositions, among other things. The borrowings under the facility were limited by the availability of sufficient real estate borrowing base, which was reduced by the amount of letters of credit outstanding. Borrowings bore daily interest at rates ranging from U.S. prime or the LIBOR plus a spread based upon the Company’s ratio of debt to tangible net worth. In addition to the stated interest rates, the revolving credit facility required the Company to pay certain fees. The interest rate of this unsecured credit facility at May 31, 2004 was 2.99%. The Company was in compliance with the covenants of this facility during its existence.

      Secured notes represent two promissory notes secured by real estate, one with a principal balance of $0 million and $0.5 million at May 31, 2005 and 2004, respectively bearing interest at the 30-day LIBOR rate (1.1% as of May 31, 2004) plus 2.75% and the other with a principal balance of $4.7 million and $5.7 million at May 31, 2005 and 2004, respectively bearing interest at 7% per annum which is due April, 2010, respectively.

      Scheduled maturities of notes payable and other borrowings as of May 31, 2005 follow (in thousands):

2006	$	1,000
2007		1,000
2008		1,000
2009		93,089
2010		700
Thereafter		—
	$	96,789

Note 6 — Transactions With Related Parties

      The Company has an unsecured note with a related party totaling $13.7 million and $3.4 million at May 31, 2005 and 2004, respectively, which bears interest at the U.S. prime lending rate plus 0.75% per annum and is payable upon demand. The note is subordinated in favor of the respective secured and unsecured revolving credit facilities.

      A services agreement with a related party provides the Company with the license, development and support for the Company’s computer systems and the provision of certain administrative services. The Company pays $600 per home closing quarterly, in arrears, in payment for these services. During the fiscal years ended May 31, 2005, 2004 and 2003, $1.1 million, $1.1 million and $0.8 million was incurred related to these services, respectively.

      As noted in Notes 3 and 4, the Company has entered into option purchase agreements for the purchase of finished lots for use in its homebuilding operations and into joint ventures for the acquisition and development of land and lots for use in its homebuilding operations and for sale to others. These

F-13

Ashton Woods USA L.L.C.

Notes to consolidated financial statements — (Continued)

arrangements, represent 386 finished lots, of which 164 remain to be purchased by the Company under its option purchase agreements representing $14.5 million in lot purchase price under specific performance obligations. The Company expects to exercise all of its option agreements with specific performance obligations. The Company also has consolidated variable interest entities pursuant to FIN 46R where the Company has entered into lot purchase agreements of which 504 finished lots representing $27.5 million in purchase price, remain to be purchased.

Note 7 — Employee Benefit Plans

      The Company has a 401(k) plan for all Company employees who have been with the Company for a period of three months or more. The Company matches portions of employee’s voluntary contributions up to 4% of an employee’s compensation up to the maximum allowed under federal guidelines. Expenses for the plan were $0.7 million, $0.5 million and $0.4 million in fiscal 2005, 2004 and 2003, respectively.

Note 8 — Financial Instruments

      The fair values of the Company’s financial instruments are based on quoted market prices, where available, or are estimated. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature, involve matters of judgment and therefore, cannot be determined with precision. Estimated fair values are significantly affected by the assumptions used.

      The carrying amounts of cash and cash equivalents and notes payable, as reported in the Company’s balance sheets approximate their fair values due to their short maturity or floating interest rate terms, as applicable.

Note 9 — Commitments and Contingencies

      The Company is involved in lawsuits and other contingencies in the ordinary course of business. Management believes that, while the ultimate outcome of the contingencies cannot be predicted with certainty, the ultimate liability, if any, will not have a material adverse effect on the Company’s consolidated financial statements.

      In the normal course of business, the Company provides standby letters of credit issued to third parties to secure performance under various contracts. As of May 31, 2005, 2004 and 2003, the Company had letters of credit outstanding of $11.0 million, $3.7 million and $4.9 million, respectively.

      The Company leases office space and equipment under various operating leases. Minimum annual lease payments under these leases at May 31, 2005 were (in thousands):

2006	$	1,580
2007		1,342
2008		1,110
2009		299
2010		242

      Rent expense approximated $1.0 million, $0.9 million and $0.8 million for fiscal 2005, 2004 and 2003, respectively and is included within general and administrative expense on the consolidated statements of earnings.

F-14

Ashton Woods USA L.L.C.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

		November 30,		May 31,
		2005		2005
		(In thousands)
ASSETS
Cash and cash equivalents		$	37	$	105
Inventory
	Construction in progress and finished homes		195,383		126,010
	Land and land under development		152,405		129,983
Real estate not owned			14,419		14,945
Property and equipment, net			7,011		5,620
Accounts receivable			5,617		10,649
Restricted cash			103		104
Other assets			18,126		9,998
Investments in unconsolidated entities			10,585		12,029
		$	403,686	$	309,443
LIABILITIES AND MEMBERS’ EQUITY
Liabilities
	Notes payable	$	171,839	$	96,789
	Related party note		—		13,746
	Customer deposits		15,817		12,290
	Liabilities related to real estate not owned		12,107		12,551
	Accounts payable and accruals		46,806		42,476
Total liabilities			246,569		177,852
Minority interests in real estate not owned			1,911		1,993
Members’ equity			155,206		129,598
		$	403,686	$	309,443

See accompanying notes to condensed consolidated financial statements

F-15

Ashton Woods USA L.L.C.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

		Three Months Ended				Six Months Ended
		November 30,				November 30,
		2005		2004		2005		2004
		(In thousands)				(In thousands)
Revenues
	Home sales	$	134,551	$	103,711	$	241,005	$	209,987
	Land sales		23,609		3,081		23,678		26,920
	Other		169		217		514		664
			158,329		107,009		265,197		237,571
Cost of sales
	Home sales		105,826		83,516		190,253		167,385
	Land sales		9,665		2,698		9,851		12,897
			115,491		86,214		200,104		180,282
Gross profit
	Home sales		28,725		20,195		50,752		42,602
	Land sales		13,944		383		13,827		14,023
	Other		169		217		514		664
			42,838		20,795		65,093		57,289
Expenses
	Sales and marketing		7,445		6,331		14,683		13,273
	General and administrative		9,520		5,676		17,570		11,742
	Related party		306		259		554		539
	Franchise taxes		80		60		170		148
	Depreciation and amortization		1,335		924		2,442		1,821
			18,686		13,250		35,419		27,523
Earnings in unconsolidated entities			633		210		1,188		549
Minority interest in earnings			—		—		—		(398	)
Net income		$	24,785	$	7,755	$	30,862	$	29,917

See accompanying notes to condensed consolidated financial statements

F-16

Ashton Woods USA L.L.C.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

			Six Months Ended
			November 30,
			2005			2004
			(In thousands)
Cash flows from operating activities:
	Net income		$	30,862		$	29,917
	Adjustments to reconcile net income to net cash (used for) provided by operating activities:
		Earnings in unconsolidated entities		(1,188	)		(549	)
		Distributions from unconsolidated entities		4,259			492
		Depreciation and amortization		2,442			1,821
		Minority interest in earnings of consolidated limited partnership		—			398
Changes in operating assets and liabilities:
		Inventory		(91,795	)		(20,044	)
		Accounts receivable		5,032			2,128
		Restricted cash		1			1,746
		Other assets		(3,895	)		(358	)
		Accounts payable and accruals		4,330			3,549
		Customer deposits		3,527			1,767
Net cash (used for) provided by operating activities				(46,425	)		20,867
Cash flows from investing activities:
	Investments in unconsolidated entities			(1,627	)		(585	)
	Additions to property and equipment			(3,833	)		(3,647	)
Net cash used in investing activities				(5,460	)		(4,232	)
Cash flows from financing activities:
	Proceeds from senior subordinated notes			125,000			—
	Proceeds from notes payable			83,000			49,800
	Repayments of notes payable			(132,950	)		(39,262	)
	Repayments of related party note			(13,746	)		(1,411	)
	Debt issuance costs			(4,233	)		—
	Members’ distributions			(5,254	)		(22,900	)
Net cash provided by (used in) financing activities				51,817			(13,773	)
(Decrease) increase in cash				(68	)		2,862
Cash and cash equivalents, beginning of period				105			625
Cash and cash equivalents, end of period			$	37		$	3,487

See accompanying notes to condensed consolidated financial statements

F-17

Ashton Woods USA L.L.C.

Notes to condensed consolidated financial statements (unaudited)

Note 1 — Organization and Basis of Presentation

      The accompanying unaudited consolidated financial statements of Ashton Woods USA L.L.C. (“Ashton Woods” or the “Company”), a limited liability company, operating as Ashton Woods Homes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Such consolidated financial statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for a complete set of consolidated financial statements. In the Company’s opinion, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation have been included in the accompanying consolidated financial statements. Certain items in prior period consolidated financial statements have been reclassified to conform to the current presentation. For further information, refer to our audited consolidated financial statements for the fiscal year ended May 31, 2005.

Note 2 — Inventory

      Inventory consists of the following (in thousands):

	November 30,		May 31,
	2005		2005
Homes under construction	$	195,383	$	126,010
Finished lots		37,910		40,216
Land under development		101,325		70,104
Land held for development		13,170		19,663
	$	347,788	$	255,993

      The Company capitalizes interest costs to inventory during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. The following table summarizes the Company’s interest costs incurred, capitalized and charged to cost of sales during periods indicated, (in thousands):

	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2005			2004			2005			2004
Capitalized interest, beginning of period	$	3,950		$	2,771		$	3,173		$	3,123
Interest incurred		3,727			954			5,396			2,060
Interest amortized to cost of sales		(1,554	)		(1,287	)		(2,446	)		(2,745	)
Capitalized interest, end of period	$	6,123		$	2,438		$	6,123		$	2,438

Note 3 — Consolidated Land Inventory Not Owned

      In the ordinary course of its business, the Company enters into land and lot option purchase contracts with unaffiliated entities in order to procure land or lots for the construction of homes. Under such option purchase contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the Company’s option deposits are non-refundable. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended by FIN 46-R issued in December 2003 (“FIN 46R”), certain non-refundable deposits are deemed to create a variable interest in a variable interest entity under the requirements of FIN 46R. As such, certain of the Company’s option purchase contracts result in the acquisition of a variable interest in the entity holding the land parcel under option.

F-18

Ashton Woods USA L.L.C.

Notes to condensed consolidated financial statements (unaudited) — (Continued)

      In applying the provisions of FIN 46R, the Company evaluated those land and lot option purchase contracts with variable interest entities to determine whether the Company is the primary beneficiary based upon analysis of the variability of the expected gains and losses of the entity. Based on this evaluation, if the Company is the primary beneficiary of an entity with which the Company has entered into a land or lot option purchase contract, the variable interest entity is consolidated.

      The consolidation of these variable interest entities added $14.4 million, $12.1 million and $1.9 million in real estate not owned, liabilities related to real estate not owned and minority interests in real estate not owned, respectively, to the Company’s balance sheet at November 30, 2005 and added $14.9 million, $12.6 million and $2.0 million in real estate not owned, liabilities related to real estate not owned and minority interests in real estate not owned, respectively, to the Company’s balance sheet at May 31, 2005.

Note 4 — Investments in Unconsolidated Entities

      The Company participates in a number of land development entities with equity investments of 50% or less and does not have a controlling interest. These land development entities are typically entered into with developers, other homebuilders and related parties to develop finished lots for sale to the members of the entities and other third parties. The Company accounts for its interest in these entities under the equity method. The Company’s share of the entity’s earnings is deferred until homes related to the lots purchased are delivered and title passes to a homebuyer. The land development entities with unrelated parties typically obtain secured acquisition and development financing. In some instances, the entity partners have provided varying levels of guarantees of debt of the unconsolidated entities. These repayment guarantees require the Company to repay its share of the debt of unconsolidated entities in the event the entity defaults on its obligations under the borrowings. The Company had repayment guarantees of $4.6 million and $4.2 million at November 30, 2005 and May 31, 2005, respectively.

      The Company’s investments in Ashton Woods Mortgage and certain title services entities are also accounted for under the equity method, as the Company does not have a controlling interest. Under the equity method, the Company’s share of the unconsolidated entities’ earnings or loss is recognized as earned.

Note 5 — Warranty Costs

      The Company provides its homebuyers with limited warranties that generally provide for ten years of structural coverage, two years of coverage for plumbing, electrical and heating, ventilation and air conditioning systems and one year of coverage for workmanship and materials. Warranty liabilities are initially established on a per home basis by charging cost of sales and crediting a warranty liability for each home delivered to cover expected costs of materials and labor during the warranty period. The following table sets forth the Company’s warranty liability, which is included in accounts payable and accruals on the consolidated balance sheets (in thousands):

	Six Months Ended
	November 30,
	2005			2004
Warranty liability, beginning of period	$	3,075		$	2,670
Costs accrued during period		2,571			1,719
Incurred costs during period		(2,592	)		(1,600	)
Warranty liability, end of period	$	3,054		$	2,789

F-19

Ashton Woods USA L.L.C.

Notes to condensed consolidated financial statements (unaudited) — (Continued)

Note 6 — Notes Payable

      The Company’s notes payable at November 30, 2005 and May 31, 2005, consist of the following (in thousands):

	November 30,		May 31,
	2005		2005
Unsecured revolving credit facility	$	46,839	$	92,089
9.5% Senior Subordinated Notes due 2015		125,000		—
Secured note		—		4,700
	$	171,839	$	96,789

      In September 2005, the Company and Ashton Woods Finance Co., the Company’s 100% owned finance subsidiary, co-issued $125 million aggregate principal amount of 9.5% Senior Subordinated Notes due 2015 in a private placement pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended. Interest on the 9.5% Senior Subordinated Notes due 2015 is payable semiannually. The net proceeds were used to repay amounts outstanding under the Company’s senior unsecured credit facility and to repay certain related party debt. The Company may redeem the notes, in whole or part, at any time on or after October 1, 2010, at a redemption price equal to 100% of the principal amount, plus a premium declining ratably to par, plus accrued and unpaid interest. In addition, at any time prior to October 1, 2008, the Company may redeem up to 35% of the aggregate principal amount of the notes with the proceeds of qualified equity offerings at a redemption price equal to 109.5% of the principal amount, plus accrued and unpaid interest. The notes are unsecured and subordinated in right of payment to all of the Company’s existing and future senior debt, including borrowings under the Company’s senior unsecured credit facility. All of the Company’s existing subsidiaries, other than the co-issuer, fully and unconditionally guaranteed, jointly and severally, the notes on a senior subordinated basis. Each of the subsidiary guarantors is 100% owned by the Company. Future direct and indirect U.S. subsidiaries, excluding subsidiaries that are designated unrestricted subsidiaries in accordance with the indenture, will be required to guarantee the notes. The guarantees are general unsecured obligations of the guarantors and will be subordinated in right of payment to all existing and future senior debt of the guarantors. The Company does not have any independent operations or assets apart from its investments in its subsidiaries.

      In January 2005, the Company entered into a four-year $225 million unsecured revolving credit facility. This facility includes an additional $75 million accordion feature that permits, under certain circumstances an increase in the facility. Borrowing capacity of this facility is reduced by the amount of letters of credit outstanding. At November 30, 2005, the Company had available borrowing capacity from this facility of $178.2 million as determined by borrowing base limitations defined by the agreement with the lending banks. The facility is guaranteed by all of the Company’s wholly-owned subsidiaries and all the holders of the Company’s membership interests and contains covenants which requires the maintenance of certain levels of tangible net worth and compliance with certain minimum financial ratios, places limitations on the payment of dividends and redemptions of equity, and limits the incurrence of additional indebtedness, asset dispositions, mergers, certain investments and the creation of liens, among other items. Consequently, the covenants in the Company’s amended senior unsecured credit facility have not had a material impact on its operations, financial condition and results of operations. However, in the future the Company’s ability to secure financing for its operations or otherwise pursue its business plan could be limited by these covenants, and if the Company is unable to obtain financing for its operations or otherwise pursue its business plan, the Company’s growth may be impaired and its revenues may decline. As of November 30, 2005, the borrowings under the facility bear daily interest at rates based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company’s ratio of debt to tangible net worth. In addition to the stated interest rates, the revolving credit facility requires the

F-20

Ashton Woods USA L.L.C.

Notes to condensed consolidated financial statements (unaudited) — (Continued)

Company to pay certain fees. The effective interest rate of the unsecured bank debt at November 30, 2005 was approximately 5.8%. As of and for the six months ended November 30, 2005, the Company was in compliance with the covenants of this facility.

Note 7 — Transactions With Related Parties

      The Company has entered into a services agreement with a related party for the license, development and support of its computer systems and for the provision of certain administrative services. The Company pays $600 per home closing quarterly, in arrears, in payment for these services. The Company incurred fees of $0.3 million and $0.6 million related to these services during the three and six months ended November 30, 2005, respectively, compared with $0.3 million and $0.5 million for the same periods in the prior fiscal year.

      The Company has entered into option purchase agreements for the purchase of finished lots for use in its homebuilding operations and into joint ventures for the acquisition and development of land and lots for use in its homebuilding operations with certain related parties. These arrangements relate to 221 finished lots, of which 76 remain to be purchased by the Company representing $5.9 million in lot purchase price under specific performance obligations. The Company expects to exercise all of its option agreements with specific performance obligations. The Company also has consolidated variable interest entities pursuant to FIN 46R where the Company has entered into lot purchase agreements with related parties. As of November 30, 2005, the Company has 443 finished lots under contract to be purchased, representing $25.3 million in purchase price, of which 25 lots representing $1.2 million remain to be purchased under specific performance obligations from related parties.

      The Company had an unsecured note with a related party in the principal amount of $13.7 million at May 31, 2005, which was repaid during the three months ended November 30, 2005.

Note 8 — Contingencies

      The Company is involved in lawsuits and other contingencies in the ordinary course of business. Management believes that, while the ultimate outcome of the contingencies cannot be predicted with certainty, the ultimate liability, if any, will not have a material adverse effect on the Company’s consolidated financial statements.

Note 9 — Provision for income taxes

      The Company operates as a limited liability company. Accordingly, the Company incurs no liability for federal or state income taxes, as these taxes are passed through to the members.

Note 10 — Subsequent Events

      In December 2005, the Company entered into an amended senior unsecured credit facility. The amended senior unsecured credit facility provides for up to $300.0 million of unsecured borrowings, subject to a borrowing base, and includes an accordion feature by which the Company may request, subject to certain conditions, an increase of the amended senior unsecured credit facility up to a maximum of $400.0 million. The amended senior unsecured credit facility provides for the issuance of up to $50.0 million in letters of credit. The maturity date of the amended senior unsecured credit facility is January 19, 2010. However, once during each fiscal year the Company may request that the lenders extend the maturity date by an additional year. The Company’s obligations under the amended senior unsecured credit facility are guaranteed by certain of its subsidiaries and all the holders of its membership interests. The amended senior unsecured credit facility contains a number of customary financial and operating covenants, including covenants requiring the Company to maintain a minimum consolidated tangible net

F-21

Ashton Woods USA L.L.C.

Notes to condensed consolidated financial statements (unaudited) — (Continued)

worth; requiring the Company to maintain a ratio of consolidated/total liabilities to adjusted net worth not in excess of 2.25x; requiring the Company to maintain an interest coverage ratio of at least 2.5x; limiting the principal amount of the Company’s secured debt to $50 million at any given time; limiting the net book value of the Company’s unimproved entitled land, lots under development and finished lots to 150.0% of the Company’s adjusted tangible net worth; limiting the aggregate distributions by the Company and its subsidiaries in any fiscal year; restricting the Company’s ability to incur additional indebtedness; and restricting the Company’s ability to engage in mergers and consolidations and its ability to sell all or substantially all of its assets.

F-22

          No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Initial Purchaser. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this prospectus nor any sale made hereunder shall under any circumstances create any implication that the information herein is correct as of any time after the date hereof or that there has not been a change in the affairs of the Company since the date hereof.

Ashton Woods USA L.L.C.

and

Ashton Woods Finance Co.

Offer to Exchange

9.5% Senior Subordinated Notes due 2015,

which have been registered under

the Securities Act of 1933,

for any and all outstanding

9.5% Senior Subordinated Notes due 2015,

which have not

been registered under

the Securities Act of 1933

PROSPECTUS

       Until                     , 2006 (90 days after the date of this prospectus), all dealers that effect transactions in the exchange notes, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

                    , 2006

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

      Indemnification of the Officers, Managers and Directors of Ashton Woods USA L.L.C., Ashton Woods Corporate, LLC, Ashton Orlando Residential L.L.C., Ashton Woods Arizona L.L.C., Ashton Tampa Residential, LLC, Ashton Denver Residential, LLC, Ashton Woods Florida L.L.C., Ashton Woods Butler L.L.C. and Ashton Woods Lakeside L.L.C.

      Ashton Woods USA, L.L.C., Ashton Woods Corporate, LLC, Ashton Orlando Residential L.L.C., Ashton Woods Arizona L.L.C., Ashton Tampa Residential, LLC, Ashton Denver Residential, LLC, Ashton Woods Florida L.L.C., Ashton Woods Butler L.L.C. and Ashton Woods Lakeside L.L.C. (collectively, the “Nevada Entities”) are each a limited liability company organized under the laws of the State of Nevada.

      Section 86.411 of the Nevada Revised Statutes (the “NRS”) provides that in proceedings by third parties, a limited liability company may indemnify any person made a party (or who is threatened to be made a party) to a proceeding (including any pending, completed or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative) because such person is or was a manager, member, employee or agent of the company (or was serving in a similar capacity for another entity at the request of the company). Such indemnification may be for expenses, including attorney’s fees, judgments, fines and amounts paid in settlement by such person in connection with the proceeding, so long as such person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the company (and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful). Pursuant to Section 86.421 of the NRS, the company may indemnify a manager, member, employee or agent of the company (or a person serving in a similar capacity for another entity at the request of the company) in an action by or in the right of the company under the same conditions as a third-party action, except that no indemnification is permitted without judicial approval if such person is adjudged to be liable to the corporation.

      Pursuant to Section 86.431 of the NRS, to the extent that a manager, member, employee or agent of a limited liability company has been successful on the merits or otherwise in defense of any proceeding under Sections 86.411 or 86.421 of the NRS, or in defense of any related matter, the company must indemnify such person against expenses, including attorney’s fees, actually and reasonably incurred by him or her in connection with the defense. Any indemnification under Section 86.411 and 86.421 of the NRS, unless ordered by a court or advanced pursuant to Section 86.441 of the NRS, may be made by the limited-liability company only as authorized in the specific case upon a determination that indemnification of the manager, member, employee or agent is proper in the circumstances.

      Section 86.441 of the Nevada Revised Statutes allows a company to provide that the expenses of members and managers incurred in defending a proceeding must be paid by the company as they are incurred and in advance of the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the manager or member to repay the amount if it is ultimately determined by a court of competent jurisdiction that such person is not entitled to be indemnified by the company.

      Section 86.461 of the NRS allows a company to maintain insurance on behalf of its managers, members, employees and agents for losses by or claims made against such persons as a result of their service to the company.

      The regulations of the Nevada Entities provide that the limited liability company shall indemnify to the fullest extent permitted by the NRS and the laws of the State of Nevada, each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative,

II-1

is or was a director or manager, as the case may be, of the limited liability company or while a director or manager, as the case may be, of the limited liability company is or was serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including, without limitation, attorneys’ fees) actually incurred by such person in connection with such Proceeding. The foregoing indemnification shall continue as to a person who has ceased to serve in the capacity which initially entitled such Person to the foregoing indemnification rights.

      Pursuant to the regulations of the Nevada Entities, a director or manager who was, is or is threatened to be made a named defendant or respondent in a Proceeding is entitled to payment or reimbursement for reasonable expenses incurred by him or her in advance of the final disposition of the Proceeding and without any determination as to the director’s or manager’s ultimate entitlement to indemnification; provided, however, that the payment of such expenses incurred by any such person in advance of the final disposition of a Proceeding, shall be made only upon delivery to the limited liability company of a written affirmation by such director or manager of his or her good faith belief that he has met the appropriate standard of conduct for indemnification pursuant to the regulations and a written undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that such director or manager is not entitled to be indemnified.

      In addition, the Nevada Entities, by adoption of a resolution of the board of directors or the managers, as the case may be, may indemnify and advance expenses to an officer, employee or agent of the limited liability company to the same extent and subject to the same conditions under which it may indemnify and advance expenses to directors and managers, as described above; and, the limited liability company may indemnify and advance expenses to persons who are not or were not managers, directors, officers, employees or agents of the limited liability company but who are or were serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of his status as such a person to the same extent that it may indemnity and advance expenses to directors as described above.

      Pursuant to their respective regulations, each of the Nevada Entities may purchase and maintain insurance, at its expense, to protect itself and any person who is or was serving as a manager, director, officer, employee or agent of the limited liability company or is or was serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the limited liability company would have the power to indemnify such person against such expense, liability or loss under the indemnification provisions set forth in its regulations.

Indemnification of the Officers and Directors of Ashton Woods Finance Co.

      Ashton Woods Finance Co. is a corporation organized under the laws of the State of Delaware. Section 102(b)(7) of the Delaware General Corporation Law, the DGCL, enables a corporation incorporated in the State of Delaware to eliminate or limit, through provisions in its original or amended certificate of incorporation, the personal liability of a director for violations of the director’s fiduciary duties, except (i) for any breach of the director’s duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any liability imposed pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit.

II-2

      Section 145 of the DGCL provides that a corporation incorporated in the State of Delaware may indemnify any person or persons, including officers and directors, who are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee, or agent acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, for criminal proceedings, had no reasonable cause to believe that the challenged conduct was unlawful. A corporation incorporated in the State of Delaware may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must provide indemnification against the expenses that such officer or director actually and reasonably incurred.

      Section 145(g) of the DGCL authorizes a corporation incorporated in the State of Delaware to provide liability insurance for directors and officers for certain losses arising from claims or charges made against them while acting in their capacities as directors or officers of the corporation.

      The bylaws of Ashton Woods Finance Co. provide that the corporation shall indemnify each person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (an “Indemnitee”), against expenses (including attorneys’ and other professionals’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with such action, suit or proceeding, if the Indemnitee acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. The corporation shall indemnify an Indemnitee in an action by or in the right of the corporation under the same conditions, except that no indemnification shall be made in respect of any claim, issue or matter as to which the Indemnitee shall have been adjudged liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application, that despite the adjudication of liability, but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

      The bylaws of Ashton Woods Finance Co. provide that any indemnification pursuant to the bylaws (except indemnification ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination the indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct described above. However, to the extent that an Indemnitee is successful on the merits or otherwise in the defense of any action, suit or proceeding described above, or in the defense of any claim, issue or matter therein, the Indemnitee shall be indemnified against reasonable expenses (including attorneys’ and other professionals’ fees) actually and reasonably incurred by the Indemnitee in connection therewith, without the necessity of authorization in the specific case.

      Furthermore, the bylaws of Ashton Woods Finance Co. provide that the expenses (including attorney’s and other professionals’ fees) incurred by an officer or director in defending any threatened or pending civil, criminal, administrative or investigative action, suit or proceeding may, but shall not be required to, be paid by the corporation in advance of the final disposition of the suit, action or proceeding

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upon receipt of an undertaking by or on behalf of such officer or director to repay such amount if it shall ultimately be determined that such person is not entitled to indemnification by the corporation pursuant to the bylaws.

      The bylaws of Ashton Woods Finance Co. also provide that the indemnification and advancement of expenses provided in the bylaws shall not be deemed to be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any other provision of the bylaws, agreement or contract, by vote of the stockholders or of the disinterested directors or pursuant to the direction of any court of competent jurisdiction.

      In addition, the bylaws of Ashton Woods Finance Co. provide that the corporation may purchase and maintain liability insurance for directors, officers, employees or agents of the corporation or of another entity (if serving in such capacity at the request of Ashton Woods Finance Co.) against liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power or obligation to indemnify such person pursuant to its bylaws.

Indemnification of the Managers of Ashton Woods Construction LLC

      Ashton Woods Construction LLC is a limited liability company organized under the laws of the State of Arizona. Section 29-610 of the Arizona Limited Liability Company Act provides that, unless otherwise limited in a company’s articles of organization, a limited liability company may indemnify a member, manager, employee, officer or agent or any other person. The articles of organization of Ashton Woods Construction LLC do not specifically address indemnification.

Indemnification of the Managers and Officers of Canyon Realty L.L.C., Ashton Dallas Residential L.L.C., Ashton Houston Residential L.L.C. and Ashton Houston Development L.L.C.

      Canyon Realty L.L.C., Ashton Dallas Residential L.L.C., Ashton Houston Residential L.L.C. and Ashton Houston Development L.L.C. (collectively, the “Texas LLCs”) are each a limited liability company organized under the laws of the State of Texas.

      Section 101.402 of the Texas Business Organizations Code (the “TBOC”) provides that a limited liability company may indemnify a person, pay in advance or reimburse expenses incurred by a person; and purchase or procure or establish and maintain insurance or another arrangement to indemnify or hold harmless a person. For the purposes of Section 101.402 of the TBOC, a person includes a member, manager, or officer of a limited liability company or an assignee of a membership interest in the company. Article 2.20(A) of the Texas Limited Liability Company Act (the “TLLCA”) provides that subject to such standards and restrictions, if any, as are set forth in its articles of organization or in its regulations, a limited liability company shall have power to indemnify members and managers, officers, and other persons and purchase and maintain liability insurance for such persons.

      The regulations of the Texas LLCs provide that the limited liability company shall indemnify to the fullest extent permitted by the TLLCA and the Texas Business Corporation Act (the “TBCA”), each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a manager of the limited liability company or while a manager of the limited liability company is or was serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including, without limitation, attorneys’ fees) actually incurred by such person in connection with such Proceeding. The foregoing indemnification

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shall continue as to a person who has ceased to serve in the capacity which initially entitled such Person to the foregoing indemnification rights.

      Pursuant to the regulations of the Texas LLCs, a manager who was, is or is threatened to be made a named defendant or respondent in a Proceeding is entitled to payment or reimbursement for reasonable expenses incurred by him or her in advance of the final disposition of the Proceeding and without any determination as to the person’s ultimate entitlement to indemnification; provided, however, that the payment of such expenses incurred by any such person in advance of the final disposition of a Proceeding, shall be made only upon delivery to the limited liability company of a written affirmation by such manager of his or her good faith belief that he has met the appropriate standard of conduct for indemnification pursuant to the regulations and a written undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that such manager is not entitled to be indemnified.

      In addition, the Texas LLCs, by adoption of a resolution of the managers, may indemnify and advance expenses to an officer, employee or agent of the limited liability company to the same extent and subject to the same conditions under which it may indemnify and advance expenses to managers, as described above; and, the limited liability company may indemnify and advance expenses to persons who are not or were not managers, officers, employees or agents of the limited liability company but who are or were serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of his status as such a person to the same extent that it may indemnity and advance expenses to managers as described above.

      Pursuant to their respective regulations, each of the Texas LLCs may purchase and maintain insurance, at its expense, to protect itself and any person who is or was serving as a manager, officer, employee or agent of the limited liability company or is or was serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the limited liability company would have the power to indemnify such person against such expense, liability or loss under the indemnification provisions set forth in its regulations.

Indemnification of the Officers and Directors of Ashton Brookstone, Inc.

      Ashton Brookstone, Inc. is a corporation organized under the laws of the State of Texas. Section 2.02-1 of the TBCA provides that a corporation may indemnify a person who was, is, or is threatened to be made a named defendant or respondent in a proceeding because the person is or was a director, officer, employee or agent and only if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The TBCA precludes indemnification where the person was adjudged liable on the basis that a personal benefit was improperly received by him or her or the person is found liable to the corporation. The TBCA also provides that a corporation shall indemnify a director against reasonable expenses incurred by him or her in connection with a proceeding in which he or she is named a defendant or respondent because he or she is or was a director if he or she has been wholly successful, on the merits or otherwise, in the defense of the proceeding.

      The bylaws of Ashton Brookstone, Inc. provide that the corporation shall indemnify its directors and officers against reasonable expenses incurred in connection with a proceeding in which the director or officer is named as a defendant or respondent because he is or was a director or officer of the corporation if he has been wholly successful, on the merits or otherwise, in the defense of the proceeding. The corporation may, at the direction of and in the sole discretion of the board of directors, pay for or reimburse the director or officer for the payment of the director’s or officer’s reasonable expenses in

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advance of the final disposition of the proceeding, provided that the corporation receives in writing (i) an affirmation by the director or officer of his or her good faith belief that he or she has met the standards of conduct necessary for indemnification under Section 2.02-1 of the TBCA and (ii) an undertaking by or on behalf of the director or officer to repay the amount paid or reimbursed if it is ultimately determined such standards of conduct have not been met.

      In addition, the bylaws of Ashton Brookstone, Inc. provide that the corporation, at the direction of and in the sole discretion of the board of directors, shall have the right, to such further extent as permitted by law, but not the obligation to indemnify any person who (i) is or was a director, officer, employee or agent of the corporation or (ii) while a director, officer, employee or agent of the corporation, is or was serving at the request as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise.

      Pursuant to Ashton Brookstone, Inc.’s bylaws, the corporation may purchase and maintain insurance or another arrangement on behalf of any person who is or was a director, officers, employee or agent of the corporation or who is or was serving at its request as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of his status as such person, whether or not the corporation would have the power to indemnify him against that liability pursuant to the provisions of the TCBA. Furthermore, the corporation may, for the benefit of persons indemnified by the corporation, (i) create a trust fund, (ii) establish any form of self-insurance, (iii) secure its indemnity obligation by grant of a security interest or other lien on the assets of the corporation or (iv) establish a letter of credit, guaranty or surety arrangement.

Indemnification of the Officers and Directors of Black Amber Florida, Inc.

      Black Amber Florida, Inc. is a corporation organized under the laws of the State of Florida. Section 607.0850 of the Florida Business Corporation Act authorizes a corporation to provide for the indemnification of a person who was or is a party to any proceeding, by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (1) against the liability incurred in connection with such proceeding, if he or she acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful and (2) against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged liable unless a court determines that such person is fairly and reasonably entitled to indemnity for such expenses the court shall deem proper. If a director, officer, employee or agent of a corporation is successful in defense of a proceeding described above, he or she shall be indemnified against expenses actually and reasonably incurred in connection therewith. Expenses incurred by an officer or director in defending a civil or criminal proceeding may be paid by the corporation in advance of the final disposition upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if he or she is ultimately found not to be entitled to indemnity. In addition to the foregoing, unless a corporation’s articles of incorporation provide otherwise, notwithstanding the failure of a corporation to provide indemnification, a director, officer, employee or agent of the corporation who is or was a party to a proceeding may apply for indemnification or advancement of expenses to a court, and the court may order indemnification and advancement of expenses.

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      Section 607.0850 also provides that a corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against the person whether or not the corporation would have the power to indemnify the person against such liability.

      The articles of incorporation of Black Amber Florida, Inc. provide that the corporation shall to the fullest extent permitted by law, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. In addition, the corporation may pay in advance any expenses (including attorneys’ fees) that may become subject to indemnification as described above if the person receiving the advance payment undertakes in writing to repay such payment if it is ultimately determined that such person is not entitled to indemnification by the corporation. The articles of incorporation of Black Amber Florida, Inc. provide that the corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who serves or served at the corporation’s request as a director, officer, employee, agent, partner, or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have power to indemnify such person against such liability.

Indemnification of the Managers and Officers of Ashton Burden, LLC

      Ashton Burden, LLC is a limited liability company organized under the laws of the State of Florida. Section 608.4229 of the Florida Limited Liability Company Act (the “FLLCA”) provides that, subject to such standards and restrictions, if any, as are set forth in its articles of organization or operating agreement, a limited liability company shall have the power to indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever. Notwithstanding the foregoing, indemnification or advancement of expenses shall not be made to or on behalf of any member, manager, managing member, officer, employee, or agent if a judgment or other final adjudication establishes that the actions, or omissions to the act, of such person were material to the cause of action so adjudicated and certain additional requirements are met.

      The regulations of Ashton Burden, LLC provide that the limited liability company shall indemnify to the fullest extent permitted by the FLLCA and the laws of the State of Florida, each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a manager of the limited liability company or while a manager of the limited liability company is or was serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including, without limitation, attorneys’ fees) actually incurred by such person in connection with such Proceeding. The foregoing indemnification shall continue as to a person who has ceased to serve in the capacity which initially entitled such Person to the foregoing indemnification rights.

      Pursuant to the regulations of Ashton Burden, LLC, a manager who was, is or is threatened to be made a named defendant or respondent in a Proceeding is entitled to payment or reimbursement for reasonable expenses incurred by him or her in advance of the final disposition of the Proceeding and without any determination as to the person’s ultimate entitlement to indemnification; provided, however,

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that the payment of such expenses incurred by any such person in advance of the final disposition of a Proceeding, shall be made only upon delivery to the limited liability company of a written affirmation by such manager of his or her good faith belief that he has met the appropriate standard of conduct for indemnification pursuant to the regulations and a written undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that such manager is not entitled to be indemnified.

      In addition, Ashton Burden, LLC, by adoption of a resolution of the managers may indemnify and advance expenses to an officer, employee or agent of the limited liability company to the same extent and subject to the same conditions under which it may indemnify and advance expenses to managers, as described above; and, the limited liability company may indemnify and advance expenses to persons who are not or were not managers, officers, employees or agents of the limited liability company but who are or were serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of his status as such a person to the same extent that it may indemnity and advance expenses to managers as described above.

      Pursuant to the regulations of Ashton Burden, LLC, the limited liability company may purchase and maintain insurance, at its expense, to protect itself and any person who is or was serving as a manager, officer, employee or agent of the limited liability company or is or was serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the limited liability company would have the power to indemnify such person against such expense, liability or loss under the indemnification provisions set forth in its regulations.

Indemnification of the Partners of Ashton Woods Orlando Limited Partnership and Isleworth West Limited Partnership

      Ashton Woods Orlando Limited Partnership and Isleworth West Limited Partnership are each a limited partnership organized under the laws of the State of Florida. Section 620.1406(6) of the Florida Revised Uniform Limited Partnership Act of 2005 provides that a limited partnership shall reimburse a general partner for payments made and indemnify a general partner for liabilities incurred by the general partner in the ordinary course of the activities of the partnership or for the preservation of its activities or property if such payments were made or such liabilities were incurred in good faith and either in the furtherance of the limited partnership’s purposes or the ordinary scope of its activities.

      The limited partnership agreements of Ashton Woods Orlando Limited Partnership and Isleworth West Limited Partnership provide that the general partner shall be entitled to be reimbursed for all reasonable expenses incurred by it in connection with the partnership property and the conduct of the partnership business. In addition, the limited partnership agreement provides that the partnership will indemnify and hold harmless the general partner (including prior general partners) and their affiliates from and against any claim, loss, expense, liability, action or demand incurred by any of the general partners and their affiliates in respect of any omission to act or for any act performed by any of them, in the good faith belief that such person was acting or refraining from acting within the scope of its authority under the limited partnership agreement on behalf of the partnership or in furtherance of the partnership’s interests, including, without limitation, reasonable fees and expenses of litigation and appeal (including, without limitation, reasonable fees and expenses of attorneys engaged in defense of any act or omission), except that the foregoing indemnity shall not extend to claims, losses, expenses, liabilities, actions or demands incurred by reason of the gross negligence, fraud or willful misconduct of the general partner or any of its affiliates.

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      The limited partnership agreements of Ashton Woods Orlando Limited Partnership and Isleworth West Limited Partnership also provide that if the limited partners are jointly, or jointly and severally liable for any obligations, or deemed statutorily, by common law, or by judgment of a court or other tribunal or board having jurisdiction to be jointly or jointly and severally liable for any obligations, in each case where such obligations relate to the partnership or the partnership property, the respective liability of each of the limited partners, as between themselves, shall be limited in accordance with their respective percentage ownership interests. In addition, if a limited partner makes a payment pursuant to any demand from any third party under any liability in any amount in excess of its percentage ownership interest, each of the other limited partners shall pay on demand to the such limited partner its an amount in proportion to its percentage ownership interest, together with accrued interest. Further, each of the limited partners shall indemnify each other limited partner to the extent of that portion of all moneys which such limited partner has paid or may be required to pay or liability to which it is or may become subject by reason of any such joint or joint and several liability or by reason of any actions, proceedings, liability, claims, damages, costs and expenses in relation thereto or arising therefrom, which is in excess of such limited partner’s portion (based on the percentage ownership interest of such limited partner) of such moneys or liability and which has been paid or incurred.

      For a description of the provisions addressing the indemnification of directors and officers of Ashton Woods Florida, L.L.C., the General Partner of Ashton Woods Orlando Limited Partnership and Isleworth West Limited Partnership, see the discussion in “Indemnification of the Officers, Managers and Directors of Ashton Woods USA L.L.C., Ashton Woods Corporate, LLC, Ashton Orlando Residential L.L.C., Ashton Woods Arizona L.L.C., Ashton Tampa Residential, LLC, Ashton Denver Residential, LLC, Ashton Woods Florida L.L.C., Ashton Woods Butler L.L.C. and Ashton Woods Lakeside L.L.C.”

Indemnification of the Partners of Pinery Joint Venture

      Pinery Joint Venture is a general partnership organized under the laws of the State of Colorado. Pinery Joint Venture does not have any officers nor directors. Ashton Woods USA L.L.C., a Nevada limited liability company, and Ashton Denver Residential L.L.C., a Nevada limited liability company, are the sole partners of Pinery Joint Venture. For a description of the provisions addressing the indemnification of directors and officers of Ashton Woods USA L.L.C. and the managers and officers of Ashton Denver Residential L.L.C., see the discussion in “Indemnification of the Officers, Managers and Directors of Ashton Woods USA L.L.C., Ashton Woods Corporate, LLC, Ashton Orlando Residential L.L.C., Ashton Woods Arizona L.L.C., Ashton Tampa Residential, LLC, Ashton Denver Residential, LLC, Ashton Woods Florida L.L.C., Ashton Woods Butler L.L.C. and Ashton Woods Lakeside L.L.C.”

Indemnification of the Managers and Officers of Ashton Atlanta Residential, L.L.C.

      Section 14-11-306 of the Georgia Limited Liability Company Act (the “GLLCA”) provides that subject to the standards and restrictions, if any, set forth in the article of organization or written operating agreement, a limited liability company may indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever arising in connection with the limited liability company; provided that a limited liability company shall not have the power to indemnify any member or manager for (i) for his or her intentional misconduct or knowing violation of the law or (ii) for any transaction for which the person received a personal benefit in violation of any provision of a written operating agreement.

      The operating agreement of Ashton Atlanta Residential, L.L.C., as amended, provides that the limited liability company shall indemnify to the fullest extent permitted by the GLLCA and the laws of the State of Georgia, each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a manager of the limited liability company or while a manager of the limited liability company is or was serving at the request of the limited liability company

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as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including, without limitation, attorneys’ fees) actually incurred by such person in connection with such Proceeding. The foregoing indemnification shall continue as to a person who has ceased to serve in the capacity which initially entitled such Person to the foregoing indemnification rights.

      The rights to indemnification conferred pursuant to the operating agreement of Ashton Atlanta Residential, L.L.C., as amended, include the right to be paid or reimbursed for reasonable expenses incurred by a person who was, is or is threatened to be made a named defendant or respondent in a Proceeding in advance of the final disposition of the Proceeding and without any determination as to the person’s ultimate entitlement to indemnification; provided, however, that the payment of such expenses incurred by any such person in advance of the final disposition of a Proceeding, shall be made only upon delivery to the limited liability company of a written affirmation by such manager of his or her good faith belief that he has met the appropriate standard of conduct for indemnification pursuant to the regulations and a written undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that such manager is not entitled to be indemnified.

      In addition, Ashton Atlanta Residential, L.L.C., by adoption of a resolution of the managers may indemnify and advance expenses to an officer, employee or agent of the limited liability company to the same extent and subject to the same conditions under which it may indemnify and advance expenses to managers, as described above; and, the limited liability company may indemnify and advance expenses to persons who are not or were not managers, officers, employees or agents of the limited liability company but who are or were serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of his status as such a person to the same extent that it may indemnity and advance expenses to managers as described above.

      Pursuant to the operating agreement, as amended, of Ashton Atlanta Residential, L.L.C., the limited liability company may purchase and maintain insurance, at its expense, to protect itself and any person who is or was serving as a manager, officer, employee or agent of the limited liability company or is or was serving at the request of the limited liability company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the limited liability company would have the power to indemnify such person against such expense, liability or loss under the indemnification provisions set forth in its regulations.

Indemnification of the Managers and Officers of Ashton Woods Transportation, LLC

      Ashton Woods Transportation, LLC is a limited liability company organized under the laws of the State of Georgia. Section 14-11-306 of the Georgia Limited Liability Company Act provides that subject to the standards and restrictions, if any, set forth in the article of organization or written operating agreement, a limited liability company may indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever arising in connection with the limited liability company; provided that a limited liability company shall not have the power to indemnify any member or manager for (i) his or her intentional misconduct or knowing violation of the law or (ii) any transaction for which the person received a personal benefit in violation of any provision of a written operating agreement. The operating declaration of Ashton Woods Transportation, LLC, does not specifically address indemnification.

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Item 21. Exhibits and Financial Statement Schedules

Exhibit
Number			Title
	3	.1(a)*	Articles of Organization of Ashton Woods USA L.L.C.
	3	.1(b)*	Certificate of Incorporation of Ashton Woods Finance Co.
	3	.1(c)*	Articles of Organization of Ashton Woods Construction LLC.
	3	.1(d)*	Articles of Organization of Ashton Woods Corporate, LLC.
	3	.1(e)*	Articles of Organization of Ashton Woods California L.L.C.
	3	.1(f)*	Certificate of Amendment to Articles of Organization of Ashton Woods California L.L.C. (changing its name to Ashton Orlando Residential L.L.C.).
	3	.1(g)*	Articles of Organization of Ashton Woods Arizona L.L.C.
	3	.1(h)*	Certificate of Amendment to Articles of Organization of Ashton Woods Arizona L.L.C.
	3	.1(i)*	Articles of Organization of Ashton Tampa Residential L.L.C.
	3	.1(j)*	Articles of Organization of Ashton Denver Residential LLC.
	3	.1(k)*	Articles of Organization of Ashton Woods Florida L.L.C.
	3	.1(l)*	Articles of Organization of Ashton Woods Butler L.L.C.
	3	.1(m)*	Articles of Organization of Ashton Woods Lakeside L.L.C.
	3	.1(n)*	Articles of Organization of Canyon Realty L.L.C.
	3	.1(o)*	Articles of Organization of Ashton Dallas Residential L.L.C.
	3	.1(p)*	Articles of Organization of Ashton Houston Residential L.L.C.
	3	.1(q)*	Articles of Organization of Ashton Houston Development L.L.C.
	3	.1(r)*	Articles of Incorporation of Ashton Brookstone, Inc.
	3	.1(s)*	Articles of Incorporation of Black Amber Florida, Inc.
	3	.1(t)*	Articles of Organization of Ashton Burden, LLC.
	3	.1(u)*	Certificate of Limited Partnership of Ashton Woods Orlando Limited Partnership.
	3	.1(v)*	Certificate of Amendment to Certificate of Limited Partnership of Ashton Woods Orlando Limited Partnership.
	3	.1(w)*	Certificate of Limited Partnership of Lake Louise Coves Limited Partnership.
	3	.1(x)*	Certificate of Amendment to Certificate of Limited Partnership of Lake Louise Coves Limited Partnership (changing the name to Isleworth West Limited Partnership).
	3	.1(y)*	Articles of Organization of Ashton Atlanta Residential, L.L.C.
	3	.1(z)**	Articles of Organization of Ashton Woods Transportation, LLC.
	3	.2(a)*	Amended and Restated Regulations of Ashton Woods USA L.L.C.
	3	.2(b)*	Bylaws of Ashton Woods Finance Co.
	3	.2(c)*	Regulations of Ashton Woods Corporate, LLC.
	3	.2(d)*	Regulations of Ashton Woods California L.L.C. (now know as Ashton Orlando Residential L.L.C.).
	3	.2(e)*	First Amendment to Regulations of Ashton Woods California L.L.C. (now know as Ashton Orlando Residential L.L.C.).
	3	.2(f)*	Regulations of Ashton Woods Arizona L.L.C.
	3	.2(g)*	First Amendment to Regulations of Ashton Woods Arizona L.L.C.
	3	.2(h)*	Regulations of Ashton Tampa Residential L.L.C.
	3	.2(i)*	Regulations of Ashton Denver Residential LLC.
	3	.2(j)*	Amended and Restated Regulations of Ashton Woods Florida L.L.C.
	3	.2(k)*	First Amendment to Regulations of Ashton Woods Florida L.L.C.
	3	.2(l)*	Regulations of Ashton Woods Butler L.L.C.

II-11

Exhibit
Number			Title
	3	.2(m)*	First Amendment to Regulations of Ashton Woods Butler L.L.C.
	3	.2(n)*	Regulations of Ashton Woods Lakeside L.L.C.
	3	.2(o)*	First Amendment to Regulations of Ashton Woods Lakeside L.L.C.
	3	.2(p)*	Regulations of Canyon Realty L.L.C.
	3	.2(q)*	Regulations of Ashton Dallas Residential L.L.C.
	3	.2(r)*	First Amendment to Regulations of Ashton Dallas Residential L.L.C.
	3	.2(s)*	Regulations of Ashton Houston Residential L.L.C.
	3	.2(t)*	First Amendment to Regulations of Ashton Houston Residential L.L.C.
	3	.2(u)*	Regulations of Ashton Houston Development L.L.C.
	3	.2(v)*	First Amendment to Regulations of Ashton Houston Development L.L.C.
	3	.2(w)*	Second Amendment to Regulations of Ashton Houston Development L.L.C.
	3	.2(x)*	Bylaws of Ashton Brookstone, Inc.
	3	.2(y)*	Regulations of Ashton Burden, LLC.
	3	.2(z)*	Form of Agreement of Limited Partnership of Ashton Woods Orlando Limited Partnership.
	3	.2(aa)*	First Amendment to Agreement of Limited Partnership of Ashton Woods Orlando Limited Partnership
	3	.2(ab)*	Form of Agreement of Limited Partnership of Lake Louise Coves Limited Partnership (now known as Isleworth West Limited Partnership).
	3	.2(ac)*	Form of First Amendment to Agreement of Limited Partnership of Lake Louise Coves Limited Partnership (now known as Isleworth West Limited Partnership).
	3	.2(ad)*	Second Amendment to Agreement of Limited Partnership of Lake Louise Coves Limited Partnership (now known as Isleworth West Limited Partnership).
	3	.2(ae)*	Joint Venture Agreement of Pinery Joint Venture.
	3	.2(af)*	First Amendment to Joint Venture Agreement of Pinery Joint Venture.
	3	.2(ag)*	Agreement Pinery Joint Venture.
	3	.2(ah)*	Second Amendment to the Joint Venture Agreement of Pinery Joint Venture.
	3	.2(ai)*	Operating Agreement of Ashton Atlanta Residential, L.L.C.
	3	.2(aj)*	First Amendment to Operating Agreement of Ashton Atlanta Residential, L.L.C.
	3	.2(ak)**	Form of Operating Declaration of Ashton Woods Transportation, L.L.C.
	3	.2(al)**	First Amendment to the Operating Declaration of Ashton Woods Transportation, L.L.C.
	3	.2(am)**	First Amendment to Amended and Restated Regulations of Ashton Woods USA L.L.C.
	4	.1*	Form of Indenture dated as of September 21, 2005 among Ashton Woods USA L.L.C., Ashton Woods Finance Co., the guarantors named therein and U.S. Bank Trust National Association, as trustee.
	4	.2*	Form of 9.5% Senior Subordinated Note due 2015.
	4	.3*	Form of Registration Rights Agreement dated as of September 21, 2005, by and among Ashton Woods USA L.L.C., Ashton Woods Finance Co., the guarantors named therein and the initial purchasers named therein.
	5	.1*	Opinion of Paul, Hastings, Janofsky & Walker LLP
	5	.2*	Opinion of Lionel Sawyer & Collins
	5	.3*	Opinion of Hagen & Parsons, P.C.
	5	.4*	Opinion of Akerman Senterfitt.
	5	.5*	Opinion of Holley, Albertson & Polk P.C.
	5	.6*	Opinion of Fennemore Craig.
	5	.7**	Opinion of Paul, Hastings, Janofsky & Walker, L.L.P. regarding Ashton Woods Transportation, L.L.C.

II-12

Exhibit
Number			Title
	10	.1**	Form of Amended and Restated Credit Agreement, dated as of December 16, 2005, by and among Ashton Woods USA L.L.C., the Lenders party thereto, Wachovia Bank, National Association, as Agent for the Lenders, and Wachovia Capital Markets, LLC, as Lead Arranger and Sole Bookrunner, Bank of America, N.A., as Syndication Agent, and Citibank Texas, N.A., as Documentation Agent.
	10	.2*	Limited Partnership Agreement of Navo South Development Partners, Ltd., dated as of December 18, 2003, by and among G.P. Navo South, L.L.C., Ashton Dallas Residential, L.L.C., Horizon Homes Ltd., and Priority Development, L.P.
	10	.3*	Agreement of Limited Partnership for CL Ashton Woods, L.P., dated as of March 10, 2005, by and among CL Texas I, GP, LLC, CL Texas, L.P., AW Southern Trails, Inc., and Ashton Houston Residential L.L.C.
	10	.4*	Limited Liability Company Agreement of Palm Cove Developers, LLC, dated as of January 19, 2005, by and between Ashton Tampa Residential, LLC and M/I Homes of Tampa, LLC
	10	.5*	Form of Services and Software License Agreement, dated as of June 1, 2005, by and between Ashton Woods USA L.L.C. and Paramount Development Corporation Limited.
	10	.6*	Form of Ashton Woods USA, L.L.C. Nonqualified Deferred Compensation Plan, effective June 1, 2005
	10	.7**	Form of Employment Agreement, dated as of January 30, 2006, by and between Thomas Krobot and Ashton Woods USA, L.L.C.
	10	.8**	Agreement of Limited Liability Company of Ashton Woods Mortgage, LLC
	10	.9**	Dominion Title of Dallas, L.L.C. Members’ Agreement, dated January 21, 2001, by and among Stewart Title Dallas, Inc., Ashton Dallas Residential, L.L.C. and Dominion Title of Dallas, L.L.C.
	10	.10**	Dominion Title, L.L.C. Members’ Agreement, dated June 7, 1999, by and among Stewart Title Company, Daltor Houston Title, Inc. and Dominion Title, L.L.C.
	10	.11**	Assignment of Membership Interest, dated as of June 1, 2002, by and between Daltor Houston Title, Inc. and Ashton Houston Residential, L.L.C.
	10	.12**	Promissory Note to John Sharp dated April 27, 2004
	10	.13**	Form of Promissory Note to Larelnor Developments Inc.
	12	.1**	Statement re Computation of Ratios.
	21*		List of Subsidiaries of Ashton Woods U SA L.L.C.
	23	.1*	Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1).
	23	.2*	Consent of Lionel Sawyer & Collins (included in Exhibit 5.2).
	23	.3*	Consent of Hagen & Parsons, P.C. (included in Exhibit 5.3).
	23	.4*	Consent of Akerman Senterfitt (included in Exhibit 5.4).
	23	.5*	Consent of Holley, Albertson & Polk P.C. (included in Exhibit 5.5).
	23	.6*	Consent of Fennemore Craig (included in Exhibit 5.6).
	23	.7**	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
	23	.8**	Consent of Paul, Hastings, Janofsky & Walker, L.L.P. (included in Exhibit 5.7).
	24	.1*/**	Power of Attorney (included in Part II of the registration statement).
	25	.1**	Statement of Eligibility of U.S. Bank National Association, as Trustee, on Form T-1.
	99	.1**	Form of Letter of Transmittal.
	99	.2*	Form of Letter to Clients.
	99	.3*	Form of Letter to Registered Holders.
	99	.4*	Form of Notice of Guaranteed Delivery.

  *  Previously filed.

II-13

**  Filed herewith.

Item 22. Undertakings

      The undersigned registrant hereby undertakes:

      (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

      (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

      (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

      (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

      (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

      (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

      (4) That, for purposes of determining liability under the Securities Act of 1933 to any purchaser each prospectus filed pursuant to Rule 424(b) as part of the registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

      (5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities:

      The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

      (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

      (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

II-14

      (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

      (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

      Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to provisions pursuant to which the directors, officers or controlling persons may be indemnified by the registrant or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

      The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4 within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

      The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

II-15

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

ASHTON WOODS USA L.L.C.

ASHTON WOODS FINANCE CO.

By:  /s/ Robert Salomon

Robert Salomon

Chief Financial Officer

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
* Harry Rosenbaum		Director	January 31, 2006
* Bruce Freeman		Director	January 31, 2006
* Seymour Joffe		Director	January 31, 2006
* Thomas Krobot		Director, President and Chief Executive Officer (Principal Executive Officer)	January 31, 2006
/s/ Robert Salomon Robert Salomon		Chief Financial Officer (Principal Financial and Accounting Officer)	January 31, 2006
*By:	/s/ Robert Salomon Robert Salomon Attorney-in-fact

II-16

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

ASHTON ATLANTA RESIDENTIAL, L.L.C.

ASHTON DALLAS RESIDENTIAL L.L.C.

ASHTON HOUSTON RESIDENTIAL L.L.C.

ASHTON WOODS CORPORATE, LLC

ASHTON ORLANDO RESIDENTIAL L.L.C.

ASHTON WOODS ARIZONA L.L.C.

ASHTON TAMPA RESIDENTIAL L.L.C.

ASHTON DENVER RESIDENTIAL LLC

ASHTON WOODS FLORIDA L.L.C.

ASHTON WOODS BUTLER L.L.C.

ASHTON WOODS LAKESIDE L.L.C.

CANYON REALTY L.L.C.

ASHTON BURDEN, LLC

By:  /s/ Robert Salomon

Robert Salomon

Manager

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
* Harry Rosenbaum		Manager	January 31, 2006
* Bruce Freeman		Manager	January 31, 2006
* Seymour Joffe		Manager	January 31, 2006
* Thomas Krobot		Manager (Principal Executive Officer)	January 31, 2006
/s/ Robert Salomon Robert Salomon		Manager (Principal Financial and Accounting Officer)	January 31, 2006
*By:	/s/ Robert Salomon Robert Salomon Attorney-in-fact

II-17

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

ASHTON WOODS CONSTRUCTION, LLC

By:	ASHTON WOODS USA L.L.C., its sole member
By:	/s/ Robert Salomon

Robert Salomon

Chief Financial Officer

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas Krobot and Robert Salomon, or any of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution and revocation, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Harry Rosenbaum Harry Rosenbaum	Director of Ashton Woods USA L.L.C., the sole member of Ashton Construction, LLC	January 31, 2006
/s/ Bruce Freeman Bruce Freeman	Director of Ashton Woods USA L.L.C., the sole member of Ashton Construction, LLC	January 31, 2006
/s/ Seymour Joffe Seymour Joffe	Director of Ashton Woods USA L.L.C., the sole member of Ashton Construction, LLC	January 31, 2006

II-18

Signature	Title	Date
/s/ Thomas Krobot Thomas Krobot	Director, President and Chief Executive Officer (Principal Executive Officer) of Ashton Woods USA L.L.C., the sole member of Ashton Construction, LLC	January 31, 2006
/s/ Robert Salomon Robert Salomon	Chief Financial Officer (Principal Financial and Accounting Officer) of Ashton Woods USA L.L.C., the sole member of Ashton Construction, LLC	January 31, 2006

II-19

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

ASHTON WOODS ORLANDO LIMITED PARTNERSHIP

By:	ASHTON WOODS LAKESIDE L.L.C., its general partner
By:	/s/ Robert Salomon

Robert Salomon

Manager

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
* Harry Rosenbaum		Manager of Ashton Woods Lakeside L.L.C., the general partner of Ashton Woods Orlando Limited Partnership	January 31, 2006
* Bruce Freeman		Manager of Ashton Woods Lakeside L.L.C., the general partner of Ashton Woods Orlando Limited Partnership	January 31, 2006
* Seymour Joffe		Manager of Ashton Woods Lakeside L.L.C., the general partner of Ashton Woods Orlando Limited Partnership	January 31, 2006
* Thomas Krobot		Manager (Principal Executive Officer) of Ashton Woods Lakeside L.L.C., the general partner of Ashton Woods Orlando Limited Partnership	January 31, 2006
/s/ Robert Salomon Robert Salomon		Manager (Principal Financial and Accounting Officer) of Ashton Woods Lakeside L.L.C., the general partner of Ashton Woods Orlando Limited Partnership	January 31, 2006
*By:	/s/ Robert Salomon Robert Salomon Attorney-in-fact

II-20

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

ASHTON BROOKSTONE, INC.

By:  /s/ Robert Salomon

Robert Salomon

Chief Financial Officer

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
* Harry Rosenbaum		Director	January 31, 2006
* Bruce Freeman		Director	January 31, 2006
* Seymour Joffe		Director	January 31, 2006
* Thomas Krobot		President and Chief Executive Officer (Principal Executive Officer)	January 31, 2006
/s/ Robert Salomon Robert Salomon		Chief Financial Officer (Principal Financial and Accounting Officer)	January 31, 2006
*By:	/s/ Robert Salomon Robert Salomon Attorney-in-fact

II-21

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

BLACK AMBER FLORIDA, INC.

By:  /s/ Robert Salomon

Robert Salomon

Chief Financial Officer

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
* Harry Rosenbaum		Sole Director and President (Principal Executive Officer)	January 31, 2006
* Thomas Krobot		Vice President	January 31, 2006
/s/ Robert Salomon Robert Salomon		Chief Financial Officer (Principal Financial and Accounting Officer)	January 31, 2006
*By:	/s/ Robert Salomon Robert Salomon Attorney-in-fact

II-22

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

ISLEWORTH WEST LIMITED PARTNERSHIP

By:	ASHTON WOODS FLORIDA L.L.C., its general partner
By:	/s/ Robert Salomon

Robert Salomon

Manager

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
* Harry Rosenbaum		Manager of Ashton Woods Florida L.L.C., the general partner of Isleworth West Limited Partnership	January 31, 2006
* Bruce Freeman		Manager of Ashton Woods Florida L.L.C., the general partner of Isleworth West Limited Partnership	January 31, 2006
* Seymour Joffe		Manager of Ashton Woods Florida L.L.C., the general partner of Isleworth West Limited Partnership	January 31, 2006
* Thomas Krobot		Manager (Principal Executive Officer) of Ashton Woods Florida L.L.C., the general partner of Isleworth West Limited Partnership	January 31, 2006
/s/ Robert Salomon Robert Salomon		Manager (Principal Financial and Accounting Officer) of Ashton Woods Florida L.L.C., the general partner of Isleworth West Limited Partnership	January 31, 2006
By:	/s/ Robert Salomon Robert Salomon Attorney-in-fact

II-23

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

PINERY JOINT VENTURE

By:	ASHTON WOODS USA L.L.C., its managing partner
By:	/s/ Robert Salomon

Robert Salomon

Chief Financial Officer

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
* Harry Rosenbaum		Director of Ashton Woods USA L.L.C., the managing partner of Pinery Joint Venture	January 31, 2006
* Bruce Freeman		Director of Ashton Woods USA L.L.C., the managing partner of Pinery Joint Venture	January 31, 2006
* Seymour Joffe		Director of Ashton Woods USA L.L.C., the managing partner of Pinery Joint Venture	January 31, 2006
* Thomas Krobot		Director, President and Chief Executive Officer (Principal Executive Officer) of Ashton Woods USA L.L.C., the managing partner of Pinery Joint Venture	January 31, 2006
/s/ Robert Salomon Robert Salomon		Chief Financial Officer (Principal Financial and Accounting Officer) of Ashton Woods USA L.L.C., the managing partner of Pinery Joint Venture	January 31, 2006
By:	/s/ Robert Salomon Robert Salomon Attorney-in-fact

II-24

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

ASHTON WOODS TRANSPORTATION, LLC

By:  /s/ Robert Salomon

Robert Salomon

Manager

POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas Krobot and Robert Salomon, or any of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution and revocation, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Amendment No. 1 to the Registration Statement, and to file or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Harry Rosenbaum Harry Rosenbaum	Manager	January 31, 2006
/s/ Bruce Freeman Bruce Freeman	Manager	January 31, 2006
/s/ Seymour Joffe Seymour Joffe	Manager	January 31, 2006
/s/ Thomas Krobot Thomas Krobot	Manager and President (Principal Executive Officer)	January 31, 2006
/s/ Robert Salomon Robert Salomon	Manager and Chief Financial Officer (Principal Financial and Accounting Officer)	January 31, 2006

II-25

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 31st day of January, 2006.

ASHTON HOUSTON DEVELOPMENT L.L.C.

By:  /s/ Robert Salomon

Robert Salomon

Manager

POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas Krobot and Robert Salomon, or any of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution and revocation, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Amendment No. 1 to the Registration Statement, and to file or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Harry Rosenbaum Harry Rosenbaum	Manager	January 31, 2006
/s/ Bruce Freeman Bruce Freeman	Manager	January 31, 2006
/s/ Seymour Joffe Seymour Joffe	Manager	January 31, 2006
/s/ Thomas Krobot Thomas Krobot	Manager (Principal Executive Officer)	January 31, 2006
/s/ Robert Salomon Robert Salomon	Manager (Principal Financial and Accounting Officer)	January 31, 2006

II-26

EXHIBIT INDEX

Exhibit
Number			Title
	3	.1(a)*	Articles of Organization of Ashton Woods USA L.L.C.
	3	.1(b)*	Certificate of Incorporation of Ashton Woods Finance Co.
	3	.1(c)*	Articles of Organization of Ashton Woods Construction LLC.
	3	.1(d)*	Articles of Organization of Ashton Woods Corporate, LLC.
	3	.1(e)*	Articles of Organization of Ashton Woods California L.L.C.
	3	.1(f)*	Certificate of Amendment to Articles of Organization of Ashton Woods California L.L.C. (changing its name to Ashton Orlando Residential L.L.C.).
	3	.1(g)*	Articles of Organization of Ashton Woods Arizona L.L.C.
	3	.1(h)*	Certificate of Amendment to Articles of Organization of Ashton Woods Arizona L.L.C.
	3	.1(i)*	Articles of Organization of Ashton Tampa Residential L.L.C.
	3	.1(j)*	Articles of Organization of Ashton Denver Residential LLC.
	3	.1(k)*	Articles of Organization of Ashton Woods Florida L.L.C.
	3	.1(l)*	Articles of Organization of Ashton Woods Butler L.L.C.
	3	.1(m)*	Articles of Organization of Ashton Woods Lakeside L.L.C.
	3	.1(n)*	Articles of Organization of Canyon Realty L.L.C.
	3	.1(o)*	Articles of Organization of Ashton Dallas Residential L.L.C.
	3	.1(p)*	Articles of Organization of Ashton Houston Residential L.L.C.
	3	.1(q)*	Articles of Organization of Ashton Houston Development L.L.C.
	3	.1(r)*	Articles of Incorporation of Ashton Brookstone, Inc.
	3	.1(s)*	Articles of Incorporation of Black Amber Florida, Inc.
	3	.1(t)*	Articles of Organization of Ashton Burden, LLC.
	3	.1(u)*	Certificate of Limited Partnership of Ashton Woods Orlando Limited Partnership.
	3	.1(v)*	Certificate of Amendment to Certificate of Limited Partnership of Ashton Woods Orlando Limited Partnership.
	3	.1(w)*	Certificate of Limited Partnership of Lake Louise Coves Limited Partnership.
	3	.1(x)*	Certificate of Amendment to Certificate of Limited Partnership of Lake Louise Coves Limited Partnership (changing the name to Isleworth West Limited Partnership).
	3	.1(y)*	Articles of Organization of Ashton Atlanta Residential, L.L.C.
	3	.1(z)**	Articles of Organization of Ashton Woods Transportation, LLC.
	3	.2(a)*	Amended and Restated Regulations of Ashton Woods USA L.L.C.
	3	.2(b)*	Bylaws of Ashton Woods Finance Co.
	3	.2(c)*	Regulations of Ashton Woods Corporate, LLC.
	3	.2(d)*	Regulations of Ashton Woods California L.L.C. (now know as Ashton Orlando Residential L.L.C.).
	3	.2(e)*	First Amendment to Regulations of Ashton Woods California L.L.C. (now know as Ashton Orlando Residential L.L.C.).
	3	.2(f)*	Regulations of Ashton Woods Arizona L.L.C.
	3	.2(g)*	First Amendment to Regulations of Ashton Woods Arizona L.L.C.
	3	.2(h)*	Regulations of Ashton Tampa Residential L.L.C.
	3	.2(i)*	Regulations of Ashton Denver Residential LLC.
	3	.2(j)*	Amended and Restated Regulations of Ashton Woods Florida L.L.C.
	3	.2(k)*	First Amendment to Regulations of Ashton Woods Florida L.L.C.
	3	.2(l)*	Regulations of Ashton Woods Butler L.L.C.
	3	.2(m)*	First Amendment to Regulations of Ashton Woods Butler L.L.C.
	3	.2(n)*	Regulations of Ashton Woods Lakeside L.L.C.

Exhibit
Number			Title
	3	.2(o)*	First Amendment to Regulations of Ashton Woods Lakeside L.L.C.
	3	.2(p)*	Regulations of Canyon Realty L.L.C.
	3	.2(q)*	Regulations of Ashton Dallas Residential L.L.C.
	3	.2(r)*	First Amendment to Regulations of Ashton Dallas Residential L.L.C.
	3	.2(s)*	Regulations of Ashton Houston Residential L.L.C.
	3	.2(t)*	First Amendment to Regulations of Ashton Houston Residential L.L.C.
	3	.2(u)*	Regulations of Ashton Houston Development L.L.C.
	3	.2(v)*	First Amendment to Regulations of Ashton Houston Development L.L.C.
	3	.2(w)*	Second Amendment to Regulations of Ashton Houston Development L.L.C.
	3	.2(x)*	Bylaws of Ashton Brookstone, Inc.
	3	.2(y)*	Regulations of Ashton Burden, LLC.
	3	.2(z)*	Form of Agreement of Limited Partnership of Ashton Woods Orlando Limited Partnership.
	3	.2(aa)*	First Amendment to Agreement of Limited Partnership of Ashton Woods Orlando Limited Partnership
	3	.2(ab)*	Form of Agreement of Limited Partnership of Lake Louise Coves Limited Partnership (now known as Isleworth West Limited Partnership).
	3	.2(ac)*	Form of First Amendment to Agreement of Limited Partnership of Lake Louise Coves Limited Partnership (now known as Isleworth West Limited Partnership).
	3	.2(ad)*	Second Amendment to Agreement of Limited Partnership of Lake Louise Coves Limited Partnership (now known as Isleworth West Limited Partnership).
	3	.2(ae)*	Joint Venture Agreement of Pinery Joint Venture.
	3	.2(af)*	First Amendment to Joint Venture Agreement of Pinery Joint Venture.
	3	.2(ag)*	Agreement Pinery Joint Venture.
	3	.2(ah)*	Second Amendment to the Joint Venture Agreement of Pinery Joint Venture.
	3	.2(ai)*	Operating Agreement of Ashton Atlanta Residential, L.L.C.
	3	.2(aj)*	First Amendment to Operating Agreement of Ashton Atlanta Residential, L.L.C.
	3	.2(ak)**	Form of Operating Declaration of Ashton Woods Transportation, L.L.C.
	3	.2(al)**	First Amendment to Operating Declaration of Ashton Woods Transportation, L.L.C.
	3	.2(am)**	First Amendment to Amended and Restated Regulations of Ashton Woods USA L.L.C.
	4	.1*	Form of Indenture dated as of September 21, 2005 among Ashton Woods USA L.L.C., Ashton Woods Finance Co., the guarantors named therein and U.S. Bank Trust National Association, as trustee.
	4	.2*	Form of 9.5% Senior Subordinated Note due 2015.
	4	.3*	Form of Registration Rights Agreement dated as of September 21, 2005, by and among Ashton Woods USA L.L.C., Ashton Woods Finance Co., the guarantors named therein and the initial purchasers named therein.
	5	.1*	Opinion of Paul, Hastings, Janofsky & Walker LLP
	5	.2*	Opinion of Lionel Sawyer & Collins
	5	.3*	Opinion of Hagen & Parsons, P.C.
	5	.4*	Opinion of Akerman Senterfitt.
	5	.5*	Opinion of Holley, Albertson & Polk P.C.
	5	.6*	Opinion of Fennemore Craig.
	5	.7**	Opinion of Paul, Hastings, Janofsky & Walker, L.L.P. regarding Ashton Woods Transportation, L.L.C.

Exhibit
Number			Title
	10	.1**	Form of Amended and Restated Credit Agreement, dated as of December 16, 2005, by and among Ashton Woods USA L.L.C., the Lenders party thereto, Wachovia Bank, National Association, as Agent for the Lenders, and Wachovia Capital Markets, LLC, as Lead Arranger and Sole Bookrunner, Bank of America, N.A., as Syndication Agent, and Citibank Texas, N.A., as Documentation Agent.
	10	.2*	Limited Partnership Agreement of Navo South Development Partners, Ltd., dated as of December 18, 2003, by and among G.P. Navo South, L.L.C., Ashton Dallas Residential, L.L.C., Horizon Homes Ltd., and Priority Development, L.P.
	10	.3*	Agreement of Limited Partnership for CL Ashton Woods, L.P., dated as of March 10, 2005, by and among CL Texas I, GP, LLC, CL Texas, L.P., AW Southern Trails, Inc., and Ashton Houston Residential L.L.C.
	10	.4*	Limited Liability Company Agreement of Palm Cove Developers, LLC, dated as of January 19, 2005, by and between Ashton Tampa Residential, LLC and M/I Homes of Tampa, LLC
	10	.5*	Form of Services and Software License Agreement, dated as of June 1, 2005, by and between Ashton Woods USA L.L.C. and Paramount Development Corporation Limited.
	10	.6*	Form of Ashton Woods USA, L.L.C. Nonqualified Deferred Compensation Plan, effective June 1, 2005
	10	.7**	Form of Employment Agreement, dated as of January 30, 2006, by and between Thomas Krobot and Ashton Woods USA, L.L.C.
	10	.8**	Agreement of Limited Liability Company of Ashton Woods Mortgage, LLC
	10	.9**	Dominion Title of Dallas, L.L.C. Members’ Agreement, dated January 21, 2001, by and among Stewart Title Dallas, Inc., Ashton Dallas Residential, L.L.C. and Dominion Title of Dallas, L.L.C.
	10	.10**	Dominion Title, L.L.C. Members’ Agreement, dated June 7, 1999, by and among Stewart Title Company, Daltor Houston Title, Inc. and Dominion Title, L.L.C.
	10	.11**	Assignment of Membership Interest, dated as of June 1, 2002, by and between Daltor Houston Title, Inc. and Ashton Houston Residential, L.L.C.
	10	.12**	Promissory Note to John Sharp dated April 27, 2004
	10	.13**	Form of Promissory Note to Larelnor Developments Inc.
	12	.1**	Statement re Computation of Ratios.
	21*		List of Subsidiaries of Ashton Woods U SA L.L.C.
	23	.1*	Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1).
	23	.2*	Consent of Lionel Sawyer & Collins (included in Exhibit 5.2).
	23	.3*	Consent of Hagen & Parsons, P.C. (included in Exhibit 5.3).
	23	.4*	Consent of Akerman Senterfitt (included in Exhibit 5.4).
	23	.5*	Consent of Holley, Albertson & Polk P.C. (included in Exhibit 5.5).
	23	.6*	Consent of Fennemore Craig (included in Exhibit 5.6).
	23	.7**	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
	23	.8**	Consent of Paul, Hastings, Janofsky & Walker, L.L.P. (included in Exhibit 5.7).
	24	.1*/**	Power of Attorney (included in Part II of the registration statement).
	25	.1**	Statement of Eligibility of U.S. Bank National Association, as Trustee, on Form T-1.
	99	.1**	Form of Letter of Transmittal.
	99	.2*	Form of Letter to Clients.
	99	.3*	Form of Letter to Registered Holders.
	99	.4*	Form of Notice of Guaranteed Delivery.

  *  Previously filed.

**  Filed herewith.

EX-3.1(Z)

                                                                 EXHIBIT 3.1 (z)


                            ARTICLES OF ORGANIZATION
                      OF ASHTON WOODS TRANSPORTATION, LLC

                                 Article 1. Name

         The name of this Limited Liability Company is "ASHTON WOODS
TRANSPORTATION, LLC." It is referred to in these Articles of Organization as
the "Company." It is organized under the Georgia Limited Liability Company Act,
O.C.G.A. Section 14-11-100, et seq.

                              Article 2. Management

         Management of the Company is vested in one or more Managers, selected
in accordance with the Operating Agreement of the Company and the Georgia
Limited Liability Company Act.

         IN WITNESS WHEREOF, the Organizer of the Company has executed these
Articles of Organization this 24th day of October, 2005 at Atlanta, Georgia.



                           /s/ DAVID N. DOROUGH, Jr.
                           -------------------------------------
                           David N. Dorough, Jr., Organizer



DOROUGH & DOROUGH, LLC
Two Decatur TownCenter, Suite 520
125 Claremont Avenue
Decatur, Georgia 30030-2551
(404) 687-9977

EX-3.2(AK)

                                                                EXHIBIT 3.2 (ak)



                              OPERATING DECLARATION

                                       OF

                        ASHTON WOODS TRANSPORTATION, LLC

                       A GEORGIA LIMITED LIABILITY COMPANY



                                OCTOBER 25, 2005











                              OPERATING DECLARATION

                                       OF

                        ASHTON WOODS TRANSPORTATION, LLC


                              - TABLE OF CONTENTS -




                                                                                                          Page Number
                                                                                                          -----------
                                                                                                   
1.  Formation..................................................................................................... 1

2.  Name; Place of Business; Registered Office and Agent.......................................................... 1

3.  Purpose....................................................................................................... 2

4.  Statutory Compliance.......................................................................................... 2

5.  Title to Company Property..................................................................................... 2

6.  Management.................................................................................................... 2

         6.1.  Authority of Member................................................................................ 2

         6.2.  Duties of Member................................................................................... 2

         6.3.  Compensation....................................................................................... 3

         6.4.  Officers........................................................................................... 3

7.  Rights and Obligations of the Member.......................................................................... 3

         7.1.  Limitation on Member's Liabilities................................................................. 3

         7.2.  Voting Rights...................................................................................... 3

         7.3.  Action by Member Without a Meeting................................................................. 3

8.  Capital Contributions......................................................................................... 4

9.  Distributions................................................................................................. 4





                                      -i-


                                                                                                   
10.  Books and Records............................................................................................ 4

         10.1.  Availability...................................................................................... 4

         10.2.  Reports........................................................................................... 4

         10.3.  Tax Returns....................................................................................... 4

         10.4.  Depositories...................................................................................... 4

11.  Dissolution.................................................................................................. 4

         11.1.  Events Causing Dissolution........................................................................ 4

         11.2.  Liquidation of Property and Application of Proceeds............................................... 5

                  11.2.1.  Winding Up............................................................................. 5

                  11.2.2.  Distribution of Proceeds............................................................... 5




                                      -ii-





                              OPERATING DECLARATION

                                       OF

                        ASHTON WOODS TRANSPORTATION, LLC


         This operating declaration ("Operating Declaration") of ASHTON WOODS
TRANSPORTATION, LLC (the "Company"), effective as of the 25th day of October,
2005, is made by ASHTON WOODS USA, L.L.C., a Nevada limited liability company as
the sole member (the "Member").

                                    Recitals

         WHEREAS, the Member desires to form ASHTON WOODS TRANSPORTATION, LLC as
a limited liability company under the Georgia Limited Liability Company Act
(O.C.G.A. Section 14-11-100 et seq.), as amended from time to time (the "Act");

         WHEREAS, the Member desires to state this Operating Declaration, as set
forth below; and

         WHEREAS, this Operating Declaration is intended to constitute a written
operating agreement within the meaning of O.C.G.A. Section 14-11-101(18);

         NOW, THEREFORE, the Member declares as follows:

         1. Formation.

         Effective with the filing of the Articles of Organization (the
"Articles"), the Company shall constitute a limited liability company formed
pursuant to the Act and other applicable laws of the State of Georgia. The
Member shall, when required, file such amendments to or restatements of the
Articles, in such public offices in the State of Georgia or elsewhere as the
Member deems advisable to give effect to the provisions of this Operating
Declaration and the Articles, and to preserve the character of the Company as a
limited liability company.

         2. Name; Place of Business; Registered Office and Agent.

         The Company shall be conducted under the name of "ASHTON WOODS
TRANSPORTATION, LLC" or such other name as the Member shall hereafter designate.
The principal office and place of business of the Company shall be located at
1455 Old Alabama Road, Suite 100, Roswell, Georgia 30076. The initial registered
agent for service of process at the registered office of the Company shall be
David N. Dorough, Jr. The registered office of the Company shall be located at
Two Decatur TownCenter, Suite 520, 125 Clairemont Avenue, DeKalb County,
Decatur, Georgia 30030-2553.





         3.  Purpose.

         The purposes of the Company are to:

               (a) accomplish any lawful business which at any time appears to
the Member as conducive to or expedient for the protection or benefit of the
Company and its property;

               (b) exercise all powers necessary to or reasonably connected with
the Company's business which may be legally exercised by limited liability
companies under the Act; and

               (c) engage in all activities necessary, customary, convenient or
incident to such purposes.

         4. Statutory Compliance.

         The Company shall exist under and be governed by, and this Operating
Declaration shall be construed in accordance with, the applicable laws of the
State of Georgia. The Member shall execute and file such documents and
instruments as may be necessary or appropriate with respect to the formation of,
and the conduct of business by, the Company.

         5. Title to Company Property.

         All property shall be owned by the Company and, insofar as permitted by
applicable law, the Member shall have no ownership interest in the property.
Except as provided by law, an ownership interest in the Company shall be
personal property for all purposes.

         6. Management.

               6.1. Authority of Member. The business and affairs of the Company
shall be managed by the Member. Except as provided by applicable law, the Member
shall have full and complete authority, power, and discretion to manage and
control the business, affairs, and properties of the Company, to make all
decisions regarding those matters, and to perform any and all other acts or
activities customary or incident to the management of the Company's business.
The signature of any one or more officers of the Member on any document or
instrument purporting to bind the Company shall constitute conclusive evidence
as to third parties of the authority of such person to execute such document or
instrument on behalf of the Company and thereby so bind the Company.

               6.2. Duties of Member.

                  6.2.1. The Member shall take all actions necessary or
appropriate (i) for the continuation of the Company's valid existence as a
limited liability company under the laws of the State of Georgia and of each
other jurisdiction in which such existence is necessary to protect the limited
liability of the Member or to enable the Company to conduct the business in
which it is engaged, and (ii) for the accomplishment of the Company's purposes.



                                      -2-


                  6.2.2. The Member shall devote to the Company such time as may
be necessary for the proper performance of all duties of the Member under this
Operating Declaration, but the Member shall not be required to devote full time
to the performance of such duties and may have other business interests or
engage in other business activities. The Member shall not incur liability to the
Company or to the Member as a result of engaging in any other business or
venture.

               6.3. Compensation. Compensation of the Member for its management
duties shall be fixed from time to time by the Member, absent which the Member
shall serve without compensation.

               6.4 Officers. The Member may, from time to time, designate one or
more persons to be officers of the Company. No officer need be a resident of the
State of Georgia. Any officers so designated shall have such authority and
perform such duties as the Member may, from time to time delegate to them.
Unless the Member decides otherwise, if the title is one commonly used for
officers of a business corporation formed under the laws of the State of
Georgia, the assignment of such title shall constitute the delegation to such
officer of the authority and duties that are normally associated with that
office, subject to any specific delegation of authority and duties made to such
officer by the Member. Each officer shall hold office until his successor shall
be duly designated, or until his death, resignation or removal, to be determined
in the sole discretion of the Member. Any number of offices may be held by the
same person. Compensation of any officer shall be fixed from time to time by the
Member, absent which the officers shall serve without compensation. Any officer
may resign as such at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the Member. The acceptance of a resignation shall not
be necessary to make it effective, unless expressly so provided in the
resignation. Any officer may be removed as such, either with or without cause,
by the Member; provided, however, that such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Designation of an
officers shall not of itself create contract rights. Any vacancy occurring in
any office of the Company may be filled by the Member.

         7. Rights and Obligations of the Member.

               7.1. Limitation on Member's Liabilities. The Member's liability
shall be limited as set forth in this Operating Declaration, the Act, and other
applicable law. The Member shall not be bound by, or be personally liable for,
the expenses, liabilities, or obligations of the Company beyond the amount
contributed by the Member to the capital of the Company, except as provided
O.C.G.A. Section 14-11-408 with regard to a wrongful distribution.

               7.2. Voting Rights. Except as otherwise specifically set forth in
this Operating Declaration, the Member shall have only the voting rights set
forth in the Act.

               7.3. Action by Member Without a Meeting. Any action required or
permitted to be taken by the Member may be taken with or without a meeting, and
with or without any written consents or other writings describing the action
taken.



                                      -3-


         8. Capital Contributions.

         The Member shall contribute such amounts or property as it may from
time to time deem necessary or appropriate.

         9. Distributions.

         All distributions by the Company shall be made at the discretion of the
Member.

         10. Books and Records.

               10.1. Availability. At all times during the existence of the
Company, the Member shall keep or cause to be kept complete and accurate books
and records appropriate and adequate for the Company's business. Such books and
records, whether financial, operational, or otherwise and including a copy of
this Operating Declaration and any amendments, shall at all times be maintained
at the principal place of business of the Company. The Member or such Member's
duly authorized representative, subject to reasonable standards established by
the Member governing what information and documents are to be furnished at what
time and location and at whose expense, shall have the right at any time, for
any purpose reasonably related to such Member's ownership interest, to inspect
and copy from such books and documents during normal business hours.

               10.2. Reports. The Member shall cause to be produced a profit and
loss statement for, and a balance sheet as of the end of, each fiscal year.

               10.3. Tax Returns. The Member shall cause an accountant to
prepare all tax returns which the Company is required to file, if any, and shall
file with the appropriate taxing authorities all such returns in a manner
required for the Company to be in compliance with any law governing the timely
filing of such returns.

               10.4. Depositories. The Member shall maintain or cause to be
maintained one or more accounts for the Company in such depositories as the
Member shall select. All receipts of the Company from whatever source received
(but no funds not belonging to the Company) shall be deposited to such accounts,
and all expenses of the Company shall be paid from such accounts. All amounts so
deposited shall be received, held, and disbursed by the Member only for the
purposes authorized by this Operating Declaration. Unless otherwise determined
by the Member, all signatories on any such account shall be bonded under a
blanket commercial bond insuring the Company against loss, and such accounts
shall be insured against loss from forgery.

         11. Dissolution.

               11.1. Events Causing Dissolution. The Company shall be dissolved
and its affairs wound up at such time as the Member determines that the Company
should be dissolved, or whenever dissolution is required by law. Except as
stated in the immediately preceding sentence, the provisions of O.C.G.A. Section
14-11-602 shall not apply.



                                      -4-


               11.2. Liquidation of Property and Application of Proceeds.

                  11.2.1. Winding Up. Upon the dissolution of the Company, the
Member shall wind up the Company's affairs in accordance with the Act. In
winding up the affairs of the Company, the Member is authorized to take any and
all actions contemplated by the Act as permissible, including, without
limitation:

                     (i) prosecuting and defending suits, whether civil,
criminal or administrative;

                     (ii) settling and closing the Company's business;

                     (iii) liquidating and reducing to cash the property as
promptly as is consistent with obtaining its fair value;

                     (iv) discharging or making reasonable provision for the
Company's liabilities; and

                     (v) distributing the proceeds of liquidation and any
undisposed property.

                  11.2.2. Distribution of Proceeds. Upon the winding up of the
Company, the Member shall distribute the proceeds and undisposed property as
follows:

                     (i) to creditors, including the Member if the Member is a
creditor (to the extent and in the order of priority provided by law), in
satisfaction of liabilities of the Company, whether by payment or the making of
reasonable provisions for payment thereof; and

                     (ii) thereafter, to the Member.


         IN WITNESS WHEREOF, the sole Member hereby makes this Operating
Declaration as of the date first above written.

                            MEMBER:   ASHTON WOODS USA, L.L.C., a Nevada
                                      limited liability company

                                By:                                 (SEAL)
                                       -----------------------------

                              Name:
                                       -----------------------------

                             Title:
                                       -----------------------------




                                      -5-

EX-3.2(AL)

                                                                EXHIBIT 3.2 (al)


                FIRST AMENDMENT TO THE OPERATING DECLARATION OF

                        ASHTON WOODS TRANSPORTATION, LLC

     THIS FIRST AMENDMENT TO THE OPERATING DECLARATION OF ASHTON WOODS
TRANSPORTATION, LLC ("Amendment") is made and entered into as of___day of
December, 2005, by ASHTON WOODS USA, L.L.C., a Nevada limited liability company
(hereinafter referred to as "Ashton Woods USA").

                                   WITNESSETH

     WHEREAS, Ashton Woods USA executed that certain Operating Declaration for
Ashton Woods Transportation, LLC (the "Company") on________, 2005 (hereinafter
as supplemented and/or amended from time to time, the "Declaration");

     WHEREAS, Ashton Woods USA is the sole member of the Company ("Member") and
desires to amend the Declaration as more particularly set forth herein;

     NOW THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, Ashton Woods USA, intending to be legally bound,
amends the Declaration as follows:

     1. Definitions. Unless otherwise set forth herein, the terms used herein
shall have the meanings ascribed to such terms in the Declaration.

     2. Amendment to Operating Declaration. The Member hereby amends the
Operating Declaration by deleting Article 6 of the Declaration in its entirety
and replacing it with a new Article 6 to read as follows:

          6. MANAGEMENT.

               6.01 MANAGEMENT BY MANAGERS.

          (a) Except for situations in which the approval of the Member is
     required by this Operating Declaration or by nonwaivable provisions of
     applicable law, and subject to the provisions of Section 6.02, (i) the
     powers of the Company shall be exercised by or under the authority of, and
     the business and affairs of the Company shall be managed under the
     direction of, one or more Managers; and (ii) the Managers may make all
     decisions and take all actions for the Company not otherwise provided for
     in this Operating Declaration, including, without limitation, the
     following:

               (i) entering into, making, and performing contracts, agreements,
     and other undertakings binding the Company that may be necessary,
     appropriate, or advisable in furtherance of the purposes of the Company and
     making all decisions and waivers thereunder;






               (ii) opening and maintaining bank and investment accounts and
     arrangements, drawing checks and other orders for the payment of money, and
     designating individuals with authority to sign or give instructions with
     respect to those accounts and arrangements;

               (iii) maintaining the assets of the Company in good order;

               (iv) collecting sums due the Company;

               (v) to the extent that funds of the Company are available
     therefor, paying debts and obligations of the Company;

               (vi) acquiring, utilizing for Company purposes, and disposing of
     any asset of the Company;

               (vii) borrowing money or otherwise committing the credit of the
     Company for Company activities and voluntary prepayments or extensions of
     debt;

               (viii) selecting, removing, and changing the authority and
     responsibility of lawyers, accountants, and other advisers and consultants;

               (ix) obtaining insurance for the Company;

               (x) establishing a seal for the Company;

               (xi) selling, leasing, exchanging or otherwise disposing of
     (including by way of a pledge, mortgage, deed of trust or trust indenture)
     all or any portion of the Company's property and assets (with or without
     good will); and

               (xii) being a party to a merger of the type described in Section
     14-11-903 of the Act.

          (b) Notwithstanding the provisions of Section 6.01(a), the Managers
may not cause the Company to do any of the following without complying with the
applicable requirements set forth below:

               (i) Dissolve the Company under paragraph (3) of the Internal
     Revenue Code ("Code") Section 14-11-602, except upon the written consent of
     the Member;

               (ii) Enter into an agreement of merger of the Company of the type
     described in subsection (a) of Code Section 14-11-903, except upon the
     written consent of the Member;

               (iii) Authorize the sale, exchange, lease or other transfer of
     all or substantially all of the assets of the Company, except upon the
     written consent of the Member. For the purposes of this paragraph, assets
     shall be deemed to be less than all or substantially all of the Company's
     assets if the value of the assets does not



                                       -2-





     exceed two-thirds of the value of all of the assets of the Company and the
     revenues represented or produced by such assets do not exceed two-thirds of
     the total revenues of the Company; provided, however, that this paragraph
     shall not create any inference that the sale, exchange, lease or other
     transfer of assets exceeding the amounts described in this paragraph is the
     sale of all or substantially all of the assets of the Company;

               (iv) Admit any new member except as provided in the Act;

               (v) Amend the articles of organization under the Act or this
     Operating Declaration, without the written consent of the Member;

               (vi) Take any action under subsection (b) of Act Section
     14-11-402 to reduce or eliminate an obligation to make a contribution to
     the capital of the Company;

               (vii) Take action to continue the Company under paragraph (4) of
     Act Section 14-11-602, except upon the written consent of the Member.

               6.02 ACTIONS BY MANAGERS; COMMITTEES; DELEGATION OF AUTHORITY AND
     DUTIES.

          (a) In managing the business and affairs of the Company and exercising
     its powers, the Managers shall act (i) collectively through meetings and
     written consents pursuant to Sections 6.05 and 6.07; (ii) through
     committees pursuant to Section 6.02(b); and (iii) through Managers and
     authorized representatives to whom authority and duties have been delegated
     pursuant to Section 6.02(c).

          (b) The Managers may, from time to time, designate one or more
     committees, each of which shall be comprised of one or more Managers. Any
     such committee, to the extent provided in such resolution or in the
     Articles or this Operating Declaration, shall have and may exercise all of
     the authority of the Managers, subject to the limitations set forth in the
     Act. At every meeting of any such committee, the presence of a majority of
     all the members thereof shall constitute a quorum, and the affirmative vote
     of a majority of the members present shall be necessary for the adoption of
     any resolution. The Managers may dissolve any committee at any time, unless
     otherwise provided in the Articles or this Operating Declaration.

          (c) The Managers hereby delegate to each of the Managers (acting by
     themself and without the necessity of any other approval or authorization)
     and may delegate to an authorized representative of the Company, including
     without limitation, any Attorney-In-Fact pursuant to a Power of Attorney,
     the authority to take any of the actions authorized in Section 6.01(a)
     hereof. In addition, the Managers may assign titles (including, without
     limitation, president, vice president, secretary, assistant secretary,
     treasurer and assistant treasurer) to any such Manager or authorized
     representative. Unless the Managers decide otherwise, if the title is one
     commonly used for officers of a business corporation, the assignment of
     such


                                       -3-






     title shall constitute the delegation to such Manager of the authority and
     duties that are normally associated with that office, subject to any
     specific delegation of authority and duties made pursuant to the first
     sentence of this Section 6.02(c). Any number of titles may be held by the
     same Manager or authorized representative. Any delegation pursuant to this
     Section 6.02(c) may be revoked at any time by the Managers.

          (d) Any person dealing with the Company, other than the Member, may
     rely on the authority of any Manager, authorized representative or officer
     in taking any action in the name of the Company without inquiry into the
     provisions of this Operating Declaration or compliance herewith, regardless
     of whether that action actually is taken in accordance with the provisions
     of this Operating Declaration.

               6.03 NUMBER AND TERM OF OFFICE. The number of Managers of the
     Company shall be determined from time to time by resolution of the
     Managers; provided, however, that no decrease in the number of Managers
     that would have the effect of shortening the term of an incumbent Manager
     may be made by the Managers. If the Managers make no such determination,
     there shall be five (5) managers. Each Manager shall hold office for the
     term for which he is elected and thereafter until his successor shall have
     been elected and qualified, or until his earlier death, resignation or
     removal. Unless otherwise provided in the Articles, the Managers need not
     be Members or residents of the State of Georgia.

               6.04 VACANCIES; REMOVAL; RESIGNATION. Any Manager position to be
     filled by reason of an increase in the number of Managers may be filled by
     the appointment of such Manager by the Member. Any vacancy occurring in the
     Managers other than by reason of an increase in the number of Managers may
     be filled by the affirmative vote of a majority of the remaining Managers
     though less than a quorum of the Managers. A Manager elected to fill a
     vacancy occurring other than by reason of an increase in the number of
     Managers shall be elected for the unexpired term of his predecessor in
     office. Any Manager may be removed, with or without cause, by the Member.
     Any Manager may resign at any time. Such resignation shall be made in
     writing and shall take effect at the time specified therein, or if no time
     be specified, at the time of its receipt by the remaining Managers. The
     acceptance of a resignation shall not be necessary to make it effective,
     unless expressly so provided in the resignation.

               6.05 MEETINGS. (a) Unless otherwise required by law or provided
     in the Articles or this Operating Declaration, a majority of the total
     number of Managers fixed by, or in the manner provided in, the Articles or
     this Operating Declaration shall constitute a quorum for the transaction of
     business of the Managers, and the act of a majority of the Managers present
     at a meeting at which a quorum is present shall be the act of the Managers.
     A Manager who is present at a meeting of the Managers at which action on
     any Company matter is taken shall be presumed to have assented to the
     action unless his dissent shall be entered in the minutes of the meeting or
     unless he shall file his written dissent to such action with the person
     acting as secretary of the meeting before the adjournment thereof or shall


                                       -4-






     deliver such dissent to the Company immediately after the adjournment of
     the meeting. Such right to dissent shall not apply to a Manager who voted
     in favor of such action.

          (b) Meetings of the Managers may be held at such place or places as
     shall be determined from time to time by resolution of the Managers. At all
     meetings of the Managers, business shall be transacted in such order as
     shall from time to time be determined by resolution of the Managers.
     Attendance of a Manager at a meeting shall constitute a waiver of notice of
     such meeting, except where a Manager attends a meeting for the express
     purpose of objecting to the transaction of any business on the ground that
     the meeting is not lawfully called or convened.

          (c) Regular meetings of the Managers shall be held at such times and
     places as shall be designated from time to time by resolution of the
     Managers. Notice of such regular meetings shall not be required.

          (d) Special meetings of the Managers may be called by any Manager on
     at least 24 hours notice to each other Manager. Such notice need not state
     the purpose or purposes of, nor the business to be transacted at, such
     meeting, except as may otherwise be required by law or provided for by the
     Articles or this Operating Declaration.

               6.06 APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY MEMBER. The
     Managers in their discretion may submit any act or contract for approval or
     ratification by the Member and any act or contract approved or ratified by
     the Member shall be binding on the Company.

               6.07 ACTION BY WRITTEN CONSENT OR TELEPHONE CONFERENCE. Any
     action permitted or required by the Act, the Articles or this Operating
     Declaration to be taken at a meeting of the Managers or any committee
     designated by the Managers may be taken without a meeting if a consent in
     writing, setting forth the action to be taken, is signed by all the
     Managers or members of such committee, as the case may be. Such consent
     shall have the same force and effect as a unanimous vote at a meeting and
     may be stated as such in any document or instrument filed with the
     Secretary of State of Georgia, and the execution of such consent shall
     constitute attendance or presence in person at a meeting of the Managers or
     any such committee, as the case may be. Subject to the requirements of the
     Act, the Articles or this Operating Declaration for notice of meetings,
     unless otherwise restricted by the Articles, Managers, or members of any
     committee designated by the Managers, may participate in and hold a meeting
     of the Managers or any committee of Managers, as the case may be, by means
     of a conference telephone or similar communications equipment by means of
     which all persons participating in the meeting can hear each other, and
     participation in such meeting shall constitute attendance and presence in
     person at such meeting, except where a person participates in the meeting
     for the express purpose of objecting to the transaction of any business on
     the ground that the meeting is not lawfully called or convened.


                                       -5-






               6.08 COMPENSATION. The Managers shall reserve such compensation,
     if any, for their services as may be designated from time to time by all of
     the Managers. In addition, the Managers shall be entitled to be reimbursed
     for out-of-pocket costs and expenses incurred in the course of their
     service hereunder, including the portion of their overhead reasonably
     allocable to Company activities.

               6.09 CONFLICTS OF INTEREST. Subject to the other express
     provisions of this Operating Declaration, each Manager and officer and the
     Member of the Company at any time and from time to time may engage in and
     possess interests in other business ventures of any and every type and
     description, independently or with others, including ones in competition
     with the Company, with no obligation to offer to the Company or any other
     Manager or officer the right to participate therein. The Company may
     transact business with any Manager, Member, officer or affiliate thereof,
     provided the terms of those transactions are no less favorable than those
     the Company could obtain from unrelated third parties.

               6.10 OFFICERS. (a) The Managers may, from time to time, designate
     one or more persons to be officers of the Company. No officer need be a
     resident of the State of Georgia, a Member or a Manager. Any officers so
     designated shall have such authority and perform such duties as the
     Managers may, from time to time, delegate to them. The Managers may assign
     titles to particular officers. Unless the Managers decide otherwise, if the
     title is one commonly used for officers of a business corporation, the
     assignment of such title shall constitute the delegation to such officer of
     the authority and duties that are normally associated with that office,
     subject to (i) any specific delegation of authority and duties made to such
     officer by the Managers pursuant to the third sentence of this Section
     6.10(b), or (ii) any delegation of authority and duties made to one or more
     Managers or authorized representatives pursuant to Section 6.02(a). Each
     officer shall hold office until his successor shall be duly designated and
     shall quality or until his death or until he shall resign or shall have
     been removed in the manner hereinafter provided. Any number of offices may
     be held by the same person. The salaries or other compensation, if any, of
     the officers and agents of the Company shall be fixed from time to time by
     the Managers.

          (b) Any officer may resign as such at any time. Such resignation shall
     be made in writing and shall take effect at the time specified therein, or
     if no time be specified, at the time of its receipt by the Managers. The
     acceptance of a resignation shall not be necessary to make it effective,
     unless expressly so provided in the resignation. Any officer may be removed
     as such, either with or without cause, by the Managers whenever in their
     judgment the best interests of the Company will be served thereby;
     provided, however, that such removal shall be without prejudice to the
     contract rights, if any, of the person so removed. Designation of an
     officer shall not of itself create contract rights. Any vacancy occurring
     in any office of the Company (other than Manager) may be filled by the
     Managers.

               6.11 ATTORNEY-IN-FACT. (a) One or more of the Managers and/or the
     President, if any, may, from time to time, designate one or more persons to
     be an


                                       -6-






     Attorney-In-Fact of the Company. No Attorney-In-Fact need be a resident of
     the State of Georgia, a Member or a Manager. Any Attorney-ln-Fact so
     designated shall have such authority and perform such duties as the
     Managers or President may, from time to time, delegate to such person a
     written instrument constituting a Power of Attorney. Each Attorney-In-Fact
     shall hold office until his death or until he shall resign or shall have
     been removed in the manner hereinafter provided. The salaries or other
     compensation, if any, of any Attorney-In-Fact of the Company shall be fixed
     from time to time by the Managers.

          (b) Any Attorney-In-Fact may resign as such at any time. Such
     resignation shall be made in writing and shall take effect at the time
     specified therein, or if no time be specified, at the time of its receipt
     by the Managers. The acceptance of a resignation shall not be necessary to
     make it effective, unless expressly so provided in the resignation. Any
     Attorney-In-Fact may be removed as such, either with or without cause, by
     the Managers whenever in their judgment the best interests of the Company
     will be served thereby; provided, however, that such removal shall be
     without prejudice to the contract rights, if any, of the person so removed.
     Designation of an Attorney-In-Fact shall not of itself create contract
     rights.

     3. Application of Georgia Law. This Amendment, and the application or
interpretation hereof, shall be governed exclusively by its terms and by the
Georgia Act.

     4. Execution of Additional Instruments. The Member hereby agrees to execute
such other and further statements of interest and holdings, designations, powers
of attorney and other instruments necessary in connection with this Amendment to
comply with any laws, rules or regulations.

     5. Construction. Whenever the singular number is used in this Amendment and
when required by the context, the same shall include the plural and vice versa,
and the masculine gender shall include the feminine and neuter genders and vice
versa.

     6. Headings. The headings in this Amendment are inserted for convenience
only and are in no way intended to describe, interpret, define, or limit the
scope, extent or intent of this Amendment or any provision hereof.

     7. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.





                         [SIGNATURE ON FOLLOWING PAGE]






                                       -7-










     IN WITNESS WHEREOF, the undersigned has set its hand and seal as of the
date first above written.

                                      MEMBER:

                                      ASHTON WOODS USA, L.L.C., a Nevada
                                      limited liability company


                                      By: /s/ ROBERT SALOMON
                                         ---------------------------------(SEAL)
                                    Name: Robert Salomon
                                         ---------------------------------
                                   Title: CFO
                                          --------------------------------

EX-3.2(AM)

                                                                EXHIBIT 3.2 (am)



                               FIRST AMENDMENT TO
                       AMENDED AND RESTATED REGULATIONS OF
                             ASHTON WOODS USA L.L.C.


     THIS FIRST AMENDMENT TO AMENDED AND RESTATED REGULATIONS OF ASHTON WOODS
USA L.L.C. (this "Amendment") is made and entered into by and among ELLY NEVADA,
INC., a Nevada corporation ("Elly"), NORMAN NEVADA, INC., a Nevada corporation
("Norman"), LARRY NEVADA, INC., a Nevada corporation ("Larry"), LITTLE SHOTS
NEVADA L.L.C., a Nevada limited liability company ("Little Shots"), ELLY
COLORADO, INC., a Colorado corporation ("Elly CO"), NORMAN COLORADO, INC., a
Colorado corporation ("Norman CO"), and LARRY COLORADO, INC., a Colorado
corporation ("Larry CO") (said parties being hereinafter sometimes referred to
collectively as "Members" and individually as "Member").


                                    RECITALS:

     A. The Members have heretofore entered into Amended and Restated
Regulations of Ashton Woods USA L.L.C. (the "Agreement") dated as of September
1, 2005, regarding Ashton Woods USA L.L.C. (the "LLC").

     B. As permitted by the Agreement, Little Shots transferred an undivided
1-19/24% interest in the Membership Interest of Little Shots, including an
undivided 1-19/24% interest in the Sharing Ratio (as such term is defined in
the Agreement) and an undivided 1.25% interest in the Designated Entity Sharing
Ratio (as such term is defined in the Agreement), to Elly.

     C. As permitted by the Agreement, Little Shots transferred an undivided 1
- -19/24 percent interest in the Membership Interest of Little Shots, including an
undivided 1-19/24% interest in the Sharing Ratio and an undivided 1.25% interest
in the Designated Entity Sharing Ratio, to Norman.

     D. As permitted by the Agreement, Little Shots transferred an undivided 3
- -14/24 percent interest in the Membership Interest of Little Shots, including an
undivided 3-14/24% interest in the Sharing Ratio and an undivided 2.50% interest
in the Designated Entity Sharing Ratio, to Larry.








     E. As permitted by the Agreement, Little Shots transferred an undivided
1.25% interest in the Special Membership Interest of Little Shots, including an
undivided 1.25% interest in the Allocation of Profit and Distribution of Cash
(as such term is defined in the Agreement) to Elly CO.

     F. As permitted by the Agreement, Little Shots transferred an undivided
1.25% interest in the Special Membership Interest of Little Shots, including an
undivided 1.25% interest in the Allocation of Profit and Distribution of Cash to
Norman CO.

     G. As permitted by the Agreement, Little Shots transferred an undivided
2.50% interest in the Special Membership Interest of Little Shots, including an
undivided 2.50% interest in the Allocation of Profit and Distribution of Cash to
Larry CO.

     H. The Members desire to amend the Agreement to reflect and provide for the
new ownership interests of the Members and Special Members in the LLC.

     I. Capitalized terms, not specifically defined in this Amendment, shall
have the meanings given such terms in the Agreement.

     NOW, THEREFORE, for and in consideration of the premises and the respective
agreements set forth below, the parties hereto agree as follows:

     1. The Members and Special Members acknowledge and approve the transfers
described in the Recitals and agree that the LLC will abide by the terms and
provisions of such transfers.

     2. Effective as of date of this Amendment, the Members, Membership
Interests, the Sharing Ratios, and Designated Entity Sharing Ratios as set forth
on Exhibit "A" to the Agreement are as follows:


                                                         Designated Entity
Name and Address of Each Member        Sharing Ratio       Sharing Ratio
- -------------------------------        -------------    ------------------

Elly Nevada, Inc.                       31 23/24%              29.25%
3751 Victoria Park Ave.
Toronto, Ontario MlW 3Z4 Canada

Norman Nevada, Inc.                     31 23/24%              29.25%
3751 Victoria Park Ave.
Toronto, Ontario MlW 3Z4 Canada




                                        2




                                                         Designated Entity
Name and Address of Each Member        Sharing Ratio       Sharing Ratio
- -------------------------------        -------------    ------------------

Larry Nevada, Inc.                        8 14/24%             20.50%
3751 Victoria Park Ave.
Toronto, Ontario MlW 3Z4 Canada

Little Shots Nevada L.L.C.               27 12/24%             21.00
3751 Victoria Park Ave.
Toronto, Ontario M1W 3Z4 Canada


     3. Effective as of date of this Amendment, the Special Members, the Special
Membership Interests, and the Allocations of Profit and Distribution of Cash as
set forth on Exhibit "B" to the Agreement are as follows:


                                              Allocation of Profit and
Name and Address of Each Special Member         Distribution of Cash
- ---------------------------------------       -------------------------

Elly Colorado, Inc.                                    29.25%
3751 Victoria Park Ave.
Toronto, Ontario MlW 3Z4 Canada

Norman Colorado, Inc.                                  29.25%
3751 Victoria Park Ave.
Toronto, Ontario MlW 3Z4 Canada

Larry Colorado, Inc.                                   20.50%
3751 Victoria Park Ave.
Toronto, Ontario MlW 3Z4 Canada

Little Shots Nevada L.L.C.                             21.00%
3751 Victoria Park Ave.
Toronto, Ontario MlW 3Z4 Canada


     4. Except as amended hereby, the terms and provisions of the Agreement
shall remain unchanged and continue in full force and effect.

     EXECUTED as of the 29th day of November, 2005.

                                             MEMBERS:
                                             ELLY NEVADA, INC.,
                                             a Nevada corporate

                                             By: /s/ ELLY REISMAN
                                                ---------------------------
                                                Elly Reisman, President




                                       3




                                            NORMAN NEVADA, INC.,
                                            a Nevada corporation


                                            By: /s/ NORMAN REISMAN
                                              -----------------------------
                                                Norman Reisman, President



                                            LARRY NEVADA, INC.,
                                            a Nevada corporation


                                            By: /s/ LARRY ROBBINS
                                              -----------------------------
                                                Larry Robbins, President


                                            LITTLE SHOTS NEVADA L.L.C.,
                                            a Nevada limited liability company


                                            By: /s/ BRUCE FREEMAN
                                              -----------------------------
                                                Bruce Freeman, Managing Member


                                            By: /s/ SEYMOUR JOFFE
                                              -----------------------------
                                                Seymour Joffe, Managing Member


                                            By: /s/ HARRY ROSENBAUM
                                              -----------------------------
                                                Harry Rosenbaum, Managing Member



                                            SPECIAL MEMBERS:

                                            ELLY COLORADO, INC.,
                                            a Colorado corporation


                                            By: /s/ ELLY REISMAN
                                              -----------------------------
                                                Elly Reisman, President



                                            NORMAN COLORADO, INC.,
                                            a Colorado corporation


                                            By: /s/ NORMAN REISMAN
                                              -----------------------------
                                                Norman Reisman, President




                                       4




                                            LARRY COLORADO, INC.,
                                            a Colorado corporation


                                            By: /s/ Larry Robbins
                                              -----------------------------
                                                Larry Robbins, President


                                            LITTLE SHOTS NEVADA L.L.C.,
                                            a Nevada limited liability company


                                            By: /s/ Bruce Freeman
                                              -----------------------------
                                                Bruce Freeman, Managing Member


                                            By: /s/ Seymour Joffe
                                              -----------------------------
                                                Seymour Joffe, Managing Member


                                            By: /s/ Harry Rosenbaum
                                              -----------------------------
                                                Harry Rosenbaum, Managing Member


                                       5

EX-5.7

                                                                     EXHIBIT 5.7

                           (PAUL HASTINGS LETTERHEAD)





January 31, 2006


Ashton Woods USA L.L.C.
Ashton Woods Finance Co.
1080 Holcomb Bridge Road
Building 200, Suite 350
Roswell, Georgia  30076

                  Re:      Ashton Woods USA L.L.C.
                           Ashton Woods Finance Co.
                           Registration Statement on Form S-4

Ladies and Gentlemen:

         This opinion is delivered in our capacity as counsel to Ashton Woods
USA L.L.C., a Nevada limited liability company ("Ashton Woods"), Ashton Woods
Finance Co., a Delaware corporation ("Finance", and together with Ashton Woods,
"Issuers"), and Ashton Woods Transportation, LLC, a Georgia limited liability
company (the "Guarantor"), in connection with the Registration Statement on Form
S-4 (the "Registration Statement") filed by Issuers, the Guarantor and certain
other subsidiaries of Ashton Woods named in the Registration Statement (the
"Other Guarantors") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"). The Registration Statement relates to the issuance by Issuers of up to
$125,000,000 aggregate principal amount of their 9.5% Senior Notes due 2015 (the
"New Notes"), the issuance by the Guarantor of a guarantee (the "Guarantee")
with respect to the New Notes and the issuance by the Other Guarantors of
guarantees (the "Other Guarantees") with respect to the New Notes.

         The New Notes, the Other Guarantees and the Guarantee will be issued
under an indenture, dated as of September 21, 2005 (the "Indenture") among the
Issuers, the Guarantor, the Other Guarantors and U.S. Bank National Association,
as trustee (the "Trustee"). The New Notes, the Other Guarantees and the
Guarantee will be offered by the Issuers in exchange for $125,000,000 aggregate
principal amount of their outstanding 9.5% Senior Notes due 2015 and the related
guarantees of those notes.

         As such counsel and for purposes of our opinion set forth below, we
have examined originals or copies, certified or otherwise identified to our
satisfaction, of






Ashton Woods USA L.L.C.
Ashton Woods Finance Co.
January 31, 2006
Page 2




such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary or appropriate as a
basis for the opinion set forth herein, including, without limitation:

         (i) the Registration Statement;

         (ii) the Indenture;

         (iii) the Notes;

         (iv) the Guarantee;

         (v) the Certificate of Organization of the Guarantor presently in
         effect as certified by the Secretary of State of the State of Georgia
         as of a recent date and the Operating Declaration of the Guarantor, as
         amended, presently in effect as certified by the Chief Financial
         Officer of the Guarantor as of the date hereof;

         (vii) a certificate of the Secretary of State of Georgia as to the
         existence of the Guarantor under the laws of the State of Georgia; and

         (viii) resolutions adopted by the Guarantor's board of directors (or
         equivalent governing body), certified by the Chief Financial Officer of
         the Guarantor, relating to the execution and delivery of, and the
         performance by the Guarantor of its obligations under, the Transaction
         Documents.

         In addition to the foregoing, we have made such investigations of law
as we have deemed necessary or appropriate as a basis for the opinion set forth
herein.

         The Notes, the Guarantee and the Indenture are referred to herein,
individually, as a "Transaction Document" and, collectively, as the "Transaction
Documents".

         In such examination and in rendering the opinion expressed below, we
have assumed: (i) the due authorization of all agreements, instruments and other
documents by all the parties thereto (other than the due authorization of each
such agreement, instrument and document by the Guarantor); (ii) the due
execution and delivery of all agreements, instruments and other documents by all
the parties thereto (other than the due execution and delivery of each such
agreement, instrument and document by the Guarantor); (iii) the genuineness of
all signatures on all documents submitted to us; (iv)





Ashton Woods USA L.L.C.
Ashton Woods Finance Co.
January 31, 2006
Page 3




the authenticity and completeness of all documents, corporate records,
certificates and other instruments submitted to us; (v) that photocopy,
electronic, certified, conformed, facsimile and other copies submitted to us of
original documents, corporate records, certificates and other instruments
conform to the original documents, records, certificates and other instruments,
and that all such original documents are authentic and complete; (vi) the legal
capacity of all individuals executing documents; (vii) that the Transaction
Documents executed in connection with the transactions contemplated thereby are
the valid and binding obligations of each of the parties thereto (other than the
Guarantor), enforceable against such parties (other than the Guarantor) in
accordance with their respective terms and that no Transaction Document has been
amended or terminated orally or in writing except as has been disclosed to us;
and (viii) that the statements contained in the certificates and comparable
documents of public officials, officers and representatives of the Guarantor and
other persons on which we have relied for the purposes of this opinion are true
and correct. As to all questions of fact material to this opinion and as to the
materiality of any fact or other matter referred to herein, we have relied
(without independent investigation) upon certificates or comparable documents of
officers and representatives of the Guarantor.

         Based upon the foregoing, and in reliance thereon, and subject to the
limitations, qualifications and exceptions set forth herein, we are of the
opinion that when the New Notes have been duly executed, authenticated, issued
and delivered in accordance with the provisions of the Indenture upon the
exchange and the Guarantee has been duly endorsed on the New Notes, the
Guarantee will constitute the valid and binding obligation of the Guarantor
enforceable against the Guarantor in accordance with its terms.

         Our opinion set forth above is subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance and transfer, moratorium or
other laws now or hereafter in effect relating to or affecting the rights or
remedies of creditors generally and by general principles of equity (whether
applied in a proceeding at law or in equity) including, without limitation,
standards of materiality, good faith and reasonableness in the interpretation
and enforcement of contracts, and the application of such principles to limit
the availability of equitable remedies such as specific performance.

         We are members of the Bar of the States of New York and Georgia, and
accordingly, do not purport to be experts on or to be qualified to express any
opinion herein concerning the laws of any jurisdiction other than laws of the
States of New York and Georgia.



Ashton Woods USA L.L.C.
Ashton Woods Finance Co.
January 31, 2006
Page 4





         This opinion has been prepared for your use in connection with the
Registration Statement and may not be relied upon for any other purpose. This
opinion speaks as of the date hereof. We assume no obligation to advise you of
any change in the foregoing subsequent to the effectiveness of the Registration
Statement even though the change may affect the legal analysis or a legal
conclusion or other matters in this opinion letter.

         We hereby consent to being named as counsel to the Guarantor in the
Registration Statement, to the references therein to our Firm under the caption
"Legal Matters" and to the inclusion of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act, or the rules and regulations of the Commission thereunder.

                                Very truly yours,


                                /s/ Paul, Hastings, Janofsky & Walker LLP

                                Paul, Hastings, Janofsky & Walker LLP

EX-10.1

                                                                Exhibit 10.1

                   FIRST AMENDED AND RESTATED CREDIT AGREEMENT

                          dated as of December 16, 2005

                                  by and among

                            ASHTON WOODS USA L.L.C.,
                                   as Borrower

                                       and

                            the Lenders Party Hereto

                                       and

                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                            as Agent for the Lenders

                                       and

                             BANK OF AMERICA, N.A.,
                              as Syndication Agent

                                       and

                              CITIBANK TEXAS, N.A.,
                             as Documentation Agent

                                      with

                         WACHOVIA CAPITAL MARKETS, LLC,
                      as Lead Arranger and Sole Bookrunner



                                TABLE OF CONTENTS

                                                                           
ARTICLE 1: DEFINITIONS.....................................................    1
   1.1      Defined Terms..................................................    1
   1.2      Other Definitional Provisions..................................   23

ARTICLE 2: AMOUNT AND TERMS OF COMMITMENTS, REVOLVING CREDIT LOANS,
           SWINGLINE LOANS AND FACILITY L/CS...............................   24
   2.1      Commitments....................................................   24
   2.2      Notes..........................................................   25
   2.3      Procedure for Borrowing........................................   25
   2.4      Unused Fee.....................................................   26
   2.5      Interest; Default Interest.....................................   26
   2.6      Termination, Reduction or Increase of Aggregate Commitment.....   28
   2.7      Maturity Date of Commitment; Extension.........................   31
   2.8      Computation of Interest and Fees...............................   32
   2.9      Increased Costs................................................   33
   2.10     Use of Proceeds................................................   34
   2.11     Payments; Pro Rata Treatment...................................   34
   2.12     Swingline Loans................................................   35
   2.13     The Facility L/Cs..............................................   37
   2.14     Designation or Resignation of LC Issuer........................   37
   2.15     Issuance of Facility L/Cs......................................   37
   2.16     Facility L/C Participations....................................   39
   2.17     Payments.......................................................   40
   2.18     Facility L/C Fee...............................................   40
   2.19     Further Assurances.............................................   41
   2.20     Obligations Absolute...........................................   41
   2.21     LC Issuer Reporting Requirements...............................   42
   2.22     Indemnification; Nature of LC Issuer's Duties..................   42

ARTICLE 3: GENERAL PROVISIONS APPLICABLE TO LOANS..........................   43
   3.1      Conversion/Continuation Options................................   43
   3.2      Inability to Determine Interest Rate...........................   44
   3.3      Availability of LIBOR Rate Loans...............................   44
   3.4      Designation of a Different Lending Office......................   44
   3.5      Indemnity......................................................   44
   3.6      Taxes..........................................................   45
   3.7      Survival of Indemnity..........................................   47
   3.8      Telephonic Notices.............................................   47
   3.9      Funding by Lenders; Presumption by Agent.......................   47
   3.10     Replacement of Lenders.........................................   48




                                       i



                                                                           
ARTICLE 4: REPRESENTATIONS AND WARRANTIES..................................   48
   4.1      Financial Statements...........................................   49
   4.2      Existence; Compliance with Law.................................   49
   4.3      Power; Authorization; Enforceable Obligations..................   49
   4.4      No Legal Bar...................................................   50
   4.5      No Material Litigation.........................................   50
   4.6      Regulation U...................................................   50
   4.7      Investment Company Act.........................................   50
   4.8      ERISA..........................................................   50
   4.9      Disclosure.....................................................   50
   4.10     Subsidiary Information.........................................   51
   4.11     Schedules......................................................   51
   4.12     Environment....................................................   51
   4.13     Force Majeure Events...........................................   52
   4.14     Other Agreements...............................................   52
   4.15     No Defaults on Outstanding Judgments or Orders.................   52
   4.16     Ownership and Liens............................................   52
   4.17     Operation of Business..........................................   53
   4.18     Taxes..........................................................   53
   4.19     OFAC...........................................................   53

ARTICLE 5: CONDITIONS PRECEDENT............................................   53
   5.1      Conditions to Initial Loan(s)..................................   53
   5.2      Conditions to All Loans........................................   56

ARTICLE 6: AFFIRMATIVE COVENANTS...........................................   57
   6.1      Financial Statements...........................................   57
   6.2      Certificates; Other Information................................   58
   6.3      Borrowing Base Certificate.....................................   59
   6.4      Compliance with Borrowing Base Requirements....................   59
   6.5      Payment of Obligations.........................................   59
   6.6      Maintenance of Existence.......................................   59
   6.7      Maintenance of Property, Insurance.............................   60
   6.8      Inspection of Property; Books and Records; Discussions.........   60
   6.9      Notices........................................................   60
   6.10     Maintenance of Tangible Net Worth..............................   61
   6.11     Maintenance of Leverage Ratio..................................   61
   6.12     Maintenance of Interest Coverage Ratio.........................   61
   6.13     Additional Guarantors..........................................   61
   6.14     Interest Rate Contracts........................................   62

ARTICLE 7: NEGATIVE COVENANTS..............................................   62
   7.1      Limitation on Secured Indebtedness.............................   62
   7.2      Easements Encumbrances, Liens and Restrictive Covenants........   62
   7.3      Mergers, etc...................................................   62




                                       ii



                                                                           
   7.4      Limitation on Unimproved Entitled Land.........................   63
   7.5      Land Components................................................   63
   7.6      Investments, Loans and Advances................................   63
   7.7      Transactions With Affiliates...................................   63
   7.8      Limitation on Payment of Subordinated Indebtedness.............   63
   7.9      Indebtedness...................................................   64
   7.10     Limitation on Distributions....................................   65
   7.11     Ownership and Management.......................................   66
   7.12     Housing Inventory..............................................   66
   7.13     Nature of Business.............................................   66
   7.14     Sale or Discount of Receivables................................   66
   7.15     Increase in Capital............................................   66
   7.16     Capital Assets.................................................   66
   7.17     Environmental Responsibilities.................................   67

ARTICLE 8: CASH COLLATERAL.................................................   67
   8.1      Facility L/C Collateral Account................................   67
   8.2      Event of Default under Paragraph (5) of Article 9..............   67
   8.3      Other Events of Default........................................   67
   8.4      Cure; Termination..............................................   68

ARTICLE 9: DEFAULTS, EVENTS OF DEFAULT; DISTRIBUTION OF PROCEEDS AFTER
           EVENT OF DEFAULT................................................   68

ARTICLE 10: THE AGENT......................................................   71
   10.1     Appointment and Authority......................................   71
   10.2     Rights as a Lender.............................................   71
   10.3     Exculpatory Provisions.........................................   71
   10.4     Reliance by Agent..............................................   72
   10.5     Delegation of Duties...........................................   73
   10.6     Resignation of Agent...........................................   73
   10.7     Non-Reliance on Agent and Other Lenders........................   73
   10.8     No Other Duties, etc...........................................   74

ARTICLE 11: MISCELLANEOUS..................................................   74
   11.1     Amendments and Waivers.........................................   74
   11.2     Notices........................................................   74
   11.3     No Waiver; Cumulative Remedies.................................   76
   11.4     Governmental Regulation........................................   76
   11.5     Survival of Representations and Warranties.....................   76
   11.6     Costs and Expenses; Indemnification; Reimbursement; Waiver of
            Damages........................................................   76
   11.7     Successors and Assigns Generally; Assignments..................   78
   11.8     Setoff.........................................................   81
   11.9     Waiver Of Jury Trial...........................................   82




                                       iii



                                                                           
   11.10    Treatment of Certain Information; Confidentiality..............   82
   11.11    Counterparts; Integration; Effectiveness.......................   83
   11.12    Governing Law..................................................   83
   11.13    Severability of Provisions.....................................   83
   11.14    Submission to Jurisdiction; Waiver of Venue; Service of
            Process........................................................   83
   11.15    Headings.......................................................   84
   11.16    FIN 46.........................................................   84
   11.17    USA Patriot Act................................................   84
   11.18    Interrelationship with the Existing Credit Agreement...........   84



SCHEDULES

1      --   Commitments of Lenders
2      --   Principal Places of Business, etc. of All Subsidiaries
3      --   Owner Guarantors
4      --   Existing Shareholder Notes
5      --   Existing Joint Ventures
4.14   --   Other Agreements
7.6    --   Investments, Loans and Advances
7.9    --   Indebtedness

EXHIBITS

A      --   Form of Borrowing Base Certificate
B-1    --   Form of Subsidiary Guaranty Agreement
B-2    --   Form of Owner Guaranty Agreement
C      --   Form of Note
D      --   Form of Commitment and Acceptance
E      --   Form of Opinion of Counsel to Borrower
F      --   Form of Chief Financial Officer's Certificate
G      --   Form of Assignment and Assumption
H      --   Form of Notice of Borrowing
I      --   Form of Conversion/Continuation


                                       iv



                   FIRST AMENDED AND RESTATED CREDIT AGREEMENT

          THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement"),
dated as of December 16, 2005, by and among ASHTON WOODS USA L.L.C., a Nevada
limited liability company ("Borrower"), the Lenders party hereto from time to
time (the "Lenders") and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association having its main office in Charlotte, North Carolina, as agent for
Lenders ("Agent").

          WHEREAS, the Borrower, the lenders party thereto, and Wachovia Bank,
National Association, as agent, are parties to that certain Credit Agreement
dated as of January 20, 2005 (as amended and modified and in effect on the date
hereof, the "Existing Credit Agreement"); and

          WHEREAS, the Borrower, the Lenders and the Agent have agreed to amend
and restate the Existing Credit Agreement in its entirety as, and in accordance
with and subject to the terms and conditions, set forth herein; and

          NOW, THEREFORE, for valuable consideration, the receipt of which is
hereby acknowledged, Borrower, Lenders and Agent, each intending to be legally
bound, hereby agree to amend and restate in its entirety the Existing Credit
Agreement as follows:

                             ARTICLE 1: DEFINITIONS

          1.1 Defined Terms. As used in this Agreement, the following terms have
the following respective meanings:

          "ABR Loan" shall mean any Loan when and to the extent that the
interest rate thereon is determined by reference to the Alternate Base Rate.

          "Actual Costs" shall mean, with respect to the acquisition of
Unimproved Entitled Land, the acquisition and development of Lots Under
Development, the acquisition of a Finished Lot or the construction of a Housing
Unit on a Lot for a Model Housing Unit, Speculative Housing Unit or Presold
Housing Unit, as applicable, the amount that Borrower or any Subsidiary
Guarantor has actually expended (to the extent such expenditures shall
ultimately constitute costs of sales in accordance with GAAP) as of the most
recent Inventory Valuation Date for:

          (i)  the acquisition of such Unimproved Entitled Land;

          (ii) the acquisition and development of such Lots Under Development;

          (iii) the acquisition of such Finished Lot; or

          (iv) the construction of such Housing Unit on a Lot for a Model
               Housing Unit, Speculative Housing Unit or Presold Housing Unit.

          "Additional Lender" shall have the meaning set forth in Section
2.6(b)(i) hereof.


                                       1



          "Adjusted Tangible Net Worth" shall mean, at any date, the sum of (a)
Tangible Net Worth plus (b) the lesser of (i) an amount equal to fifty percent
(50%) of the outstanding principal amount of Subordinated Notes or (ii) an
amount equal to thirty-five percent (35%) of Tangible Net Worth, all determined
as of such date.

          "Administrative Questionnaire" means an Administrative Questionnaire
in a form supplied by Agent.

          "Affiliate" shall mean (a) any Person (other than a Subsidiary of
Borrower) which, directly or indirectly, controls, is controlled by or is under
common control with Borrower or (b) any Person who is a director, officer or key
employee of Borrower, any Subsidiary of Borrower or any Person described in
clause (a) of this definition. For purposes of this definition, "control" of a
Person means the power, direct or indirect, to vote five percent (5%) or more of
the securities having voting power for the election of directors or similar
governing body of such Person or otherwise to direct or cause the direction of
the management and policies of such Person, whether by contract or otherwise.

          "Agent" shall have the meaning set forth in the preamble hereof and
shall include any successor agent appointed pursuant to Section 10.6 hereof.

          "Agent's Fee Letter" shall mean that certain fee letter from the Agent
and Arranger to Borrower dated and accepted by Borrower on October 31, 2005.

          "Aggregate Commitment" shall mean the aggregate Commitments of all the
Lenders, as reduced or increased from time to time pursuant to the terms of this
Agreement. As of the date of this Agreement, the Aggregate Commitment is
$300,000,000.

          "Aggregate Outstanding Credit Exposure" means, at any time, the
aggregate of the Outstanding Credit Exposure of all Lenders.

          "Agreement" shall mean this Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.

          "Alternate Base Rate" means, for any day with respect to an ABR Loan,
the applicable British Bankers' Association LIBOR rate for deposits in Dollars
having a maturity of one month as reported by any comparable generally
recognized financial information service as of 11:00 a.m. (London time) on such
day, or if such day is not a Business Day, then on the immediately preceding
Business Day, provided that, if no such British Bankers' Association LIBOR rate
is available to Agent, the applicable Alternate Base Rate shall instead be the
rate determined by Agent from another comparable generally recognized source or
interbank quotation; provided, further, that if on any day Agent is unable to
determine the Alternate Base Rate from another source or quotation, the
Alternate Base Rate for such day shall be the rate per annum equal to the higher
of (i) the Federal Funds Rate for such day, plus 0.50%, and (ii) the Prime Rate
for such day.

          "Applicable ABR Margin" shall mean, as at any date of determination,
the margin indicated in Section 2.5(b) hereof as then applicable to ABR Loans
(under Section 2.5(a) hereof).


                                       2



          "Applicable LIBOR Margin" shall mean, as at any date of determination,
the margin indicated in Section 2.5(b) hereof as then applicable to LIBOR Rate
Loans (under Section 2.5(a) hereof). The Applicable LIBOR Margin is also the
Applicable Facility L/C Rate.

          "Applicable Facility L/C Rate" shall mean, as at any date of
determination, the rate per annum indicated in Section 2.5(b) hereof as then
applicable in the determination of the Facility L/C Fee (under Section 2.18
hereof). The Applicable Facility L/C Rate is also the Applicable LIBOR Margin.

          "Applicable Margin(s)" shall mean the Applicable ABR Margin and/or the
Applicable LIBOR Margin, as the case may be.

          "Applicable Unused Fee Rate" shall mean, as at any date of
determination, the rate per annum indicated in Section 2.5(b) hereof as then
applicable in the determination of the Unused Fee (under Section 2.4 hereof).

          "Approved Fund" means any Fund that is administered or managed by (a)
a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an
entity that administers or manages a Lender.

          "Arranger" shall mean Wachovia Capital Markets, LLC, as Lead Arranger
and Sole Bookrunner.

          "Assignment and Assumption" means an assignment and assumption entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 11.7 hereof), and accepted by Agent, in substantially the
form of Exhibit G or any other form approved by Agent.

          "Assumed Borrower Taxes" shall mean forty percent (40%) of the
quarterly consolidated net income of Borrower until the effective date of any
material change in the aggregate federal, state and local income tax rate
applicable to the owners of Borrower with respect to the net income of Borrower.
In the event that there is a material change in the aggregate federal, state and
local income tax rate applicable to the owners of Borrower, Borrower shall so
notify Agent prior to the effective date of such change and Agent shall
determine, in good faith, the aggregate income tax rate that will become
applicable to the owners of Borrower on the effective date of such change (such
determination shall be conclusive and binding on Lenders and Borrower, absent
manifest error) and on such date the percentage used to calculate "Assumed
Borrower Taxes" will be reset to approximate the newly determined applicable
aggregate income tax rate.

          "Bankruptcy Code" shall mean Title 11, U.S.C. as amended from time to
time.

          "Borrower" shall mean Ashton Woods USA L.L.C., a Nevada limited
liability company.

          "Borrowing Base" shall mean, as at any date of determination, an
amount equal to the sum of the following assets of Borrower and each Subsidiary
Guarantor (but only to the


                                       3



extent such assets (x) are not subject to any Liens other than Permitted Liens
and (y) are located within the continental United States):

          (i)  fifty percent (50%) of the Actual Costs for Unimproved Entitled
               Land; provided, however, that any Unimproved Entitled Land not
               sold or converted to Lots Under Development within twenty-four
               (24) months following the date that such Unimproved Entitled Land
               was first included in the Borrowing Base as "Unimproved Entitled
               Land" shall be excluded from the Borrowing Base, plus

          (ii) seventy percent (70%) of the Actual Costs for Lots Under
               Development; provided, however, that any Lots Under Development
               not sold or converted to Finished Lots within twenty-four (24)
               months following the date that such Lots Under Development were
               first included in the Borrowing Base as "Lots Under Development"
               shall be excluded from the Borrowing Base, plus

          (iii) seventy-five percent (75%) of the Actual Costs for Finished
               Lots; provided, however, that such percentage with respect to any
               Finished Lot not sold or converted to a Speculative Housing Unit,
               a Model Housing Unit or a Presold Housing Unit within twenty-four
               (24) months following the date that such Finished Lot was first
               included in the Borrowing Base as a "Finished Lot" shall be
               reduced to fifty percent (50%); provided, further, however, that
               any Finished Lot not sold or converted to a Speculative Housing
               Unit, a Model Housing Unit or a Presold Housing Unit within
               thirty-six (36) months following the date that such Finished Lot
               was first included in the Borrowing Base as a "Finished Lot"
               shall be excluded from the Borrowing Base, plus

          (iv) ninety-five percent (95%) of the Actual Costs for Presold Housing
               Units; provided, however, that any Presold Housing Unit not sold
               within twelve (12) months following the date that such Presold
               Housing Unit was first included in the Borrowing Base as a
               "Presold Housing Unit" shall be thereafter considered to be a
               Speculative Housing Unit for purposes of the Borrowing Base and,
               in such event, the date that such Presold Housing Unit was first
               included in the Borrowing Base as a "Presold Housing Unit" shall
               continue to determine when it is excluded from the Borrowing Base
               pursuant to clause (v) of this definition, plus

          (v)  eighty-five percent (85%) of the Actual Costs for Speculative
               Housing Units; provided, however, that such percentage with
               respect to any Speculative Housing Unit not sold within twelve
               (12) months following the date that such Speculative Housing Unit
               was first included in the Borrowing Base as a "Speculative
               Housing Unit" shall be reduced to seventy percent (70%);
               provided, further, however, that any Speculative Housing Unit not
               sold within twenty-four (24) months following the date that such
               Speculative Housing Unit was first included in the Borrowing


                                       4



               Base as a "Speculative Housing Unit" or, if applicable under
               clause (iv) above, a "Presold Housing Unit" shall be excluded
               from the Borrowing Base, plus

          (vi) eighty-five percent (85%) of the Actual Costs for Model Housing
               Units; provided, however, that such percentage with respect to
               any Model Housing Unit not sold within twenty-four (24) months
               following the date that such Model Housing Unit was first
               included in the Borrowing Base as a "Model Housing Unit" shall be
               reduced to seventy percent (70%); provided, further, however,
               that any Model Housing Unit not sold within sixty (60) months
               following the date that such Model Housing Unit was first
               included in the Borrowing Base as a "Model Housing Unit" shall be
               excluded from the Borrowing Base.

          Notwithstanding the foregoing, (a) the amount calculated pursuant to
clause (i) of this definition shall not exceed at any time twenty percent (20%)
of the Borrowing Base, (b) the aggregate of amounts calculated pursuant to
clauses (i), (ii) and (iii) of this definition shall not exceed at any time
fifty percent (50%) of the Borrowing Base, (c) the aggregate of amounts
calculated pursuant to clauses (v) and (vi) of this definition shall not exceed
at any time forty percent (40%) of the aggregate of the amounts calculated
pursuant to clauses (iv), (v) and (vi) of this definition, and (d) the amount
calculated under this definition with respect to Condo Units shall not exceed at
any time thirty percent (30%) of the Borrowing Base.

          "Borrowing Base Certificate" shall mean a certificate in the form of
Exhibit A hereto, certified by the Chief Financial Officer of Borrower.

          "Borrowing Base Indebtedness" shall mean at any date (i) Consolidated
Indebtedness, less (ii) the sum of (a) Secured Indebtedness, and (b)
Subordinated Indebtedness not due within one (1) year of such date, all as of
such date.

          "Borrowing Date" shall mean any Business Day specified pursuant to (a)
Section 2.3 hereof as a date on which Lenders make a disbursement of the
Revolving Credit Loans hereunder, (b) Section 2.12 hereof as a date on which
Swingline Lender makes, at Borrower's request, a disbursement of the Swingline
Loans hereunder, or (c) Section 2.13 hereof as a date on which an LC Issuer
issues, at Borrower's request, a Facility L/C hereunder.

          "Business Day" shall mean (a) with respect to any borrowing, payment
or rate selection of LIBOR Rate Loans or ABR Loans, a day (other than a Saturday
or Sunday) on which banks generally are open in Charlotte, North Carolina for
the conduct of substantially all of their commercial lending activities and on
which dealings in Dollars are carried on in the London interbank market and (b)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Charlotte, North Carolina for the conduct of substantially
all of their commercial lending activities.

          "Capital Leases" shall mean all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.

          "Cash Equivalents" means:


                                       5



          (a)  marketable obligations with a maturity of 360 days or less issued
               or directly and fully guaranteed or insured by the United States
               of America or any agency or instrumentality thereof (provided
               that the full faith and credit of the United States of America is
               pledged in support thereof);

          (b)  demand and time deposits and certificates of deposit or
               acceptances with a maturity of 180 days or less of any financial
               institution that is a member of the Federal Reserve System having
               combined capital and surplus and undivided profits not less that
               $500 million and is assigned at least a "B" rating by Thomson
               Financial BankWatch;

          (c)  commercial paper maturing no more than 180 days from the date of
               creation thereof issued by a corporation that is not the Borrower
               or an Affiliate of the Borrower, and is organized under the laws
               of any State of United States of America or the District of
               Columbia and rated at least A-1 by S&P or at lease P-1 by
               Moody's;

          (d)  repurchase obligations with a term of not more than ten days for
               underlying securities of the types described in clause (a) above
               entered into with any commercial bank meeting the specifications
               of clause (b) above; and

          (e)  investments in money market or other mutual funds substantially
               all of whose assets comprise securities of the types described in
               clauses (a) through (d) above.

          "Change in Law" means the occurrence, after the date of this
Agreement, of any of the following: (a) the adoption or taking effect of any
law, rule, regulation or treaty, (b) any change in any law, rule, regulation or
treaty or in the administration, interpretation or application thereof by any
Governmental Authority or (c) the making or issuance of any request, guideline
or directive (whether or not having the force of law) by any Governmental
Authority.

          "Code" shall mean the Internal Revenue Code of 1986, as amended or
superseded from time to time. Any reference to a specific provision of the Code
shall be construed to include any comparable provision of the Code as hereafter
amended or superseded.

          "Collateral Shortfall Amount" shall have the meaning set forth in
Section 8.2 hereof.

          "Commitment" shall have the meaning set forth in Section 2.1(a)
hereof.

          "Commitment and Acceptance" shall have the meaning set forth in
Section 2.6(b)(i) hereof.

          "Commitment Period" shall mean the period from and including the date
of this Agreement to the Maturity Date, or such earlier or later date as the
Aggregate Commitment shall terminate as provided herein.


                                       6



          "Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with Borrower within the meaning of
Section 414(b) or (c) of the Code.

          "Condo Units" shall mean the Housing Units related to the purchase and
development of condominiums.

          "Consolidated Earnings" shall mean, for any period, the amount which
would be set forth opposite the caption "net income" (or any like caption) in a
consolidated statement of income or operations of Borrower and its Subsidiaries
for such period prepared in accordance with GAAP, minus franchise taxes payable
in Texas and minus Assumed Borrower Taxes with respect to such period.

          "Consolidated Indebtedness" shall mean, at any date, the Indebtedness
of Borrower and its Subsidiaries determined on a consolidated basis as at such
date.

          "Construction Bonds" shall mean bonds issued by surety bond companies
for the benefit of, and as required by, municipalities or other political
subdivisions to secure the performance by Borrower or any Subsidiary of its
obligations relating to lot improvements and subdivision development and
completion.

          "Contingent Obligation" shall mean, as to any Person, any
reimbursement obligations (including, in the case of Borrower, the Reimbursement
Obligations) of such Person in respect of drafts that may be drawn under Letters
of Credit, any reimbursement obligations of such Person in respect of surety
bonds (including reimbursement obligations in respect of Construction Bonds),
and any obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations primarily to pay money
("primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including without limitation any
obligation of such Person, whether or not contingent, (a) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary obligation, or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the obligee under any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the obligee under such primary
obligation against loss in respect thereof; provided, however, that the term
"Contingent Obligation" shall not include (A) endorsements of instruments for
deposit or collection in the ordinary course of business, and (B) obligations
(including indemnity obligations) under purchase contracts or sale contracts
entered into in the ordinary course of business.

          "Contractual Obligation" shall mean, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.

          "Default" shall mean any of the events specified in Article 9 hereof,
whether or not any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.


                                       7



          "Distribution" means any dividend or other distribution (whether in
cash or other tangible property) with respect to any capital stock or other
equity interest of any Person or any Subsidiary, or any payment (whether in cash
or other tangible property) to any Person or Persons other than the Borrower,
including any redemption, retirement, acquisition, cancellation or termination
of any such capital stock or other equity interest or of any option, warrant or
other right to acquire any such capital stock or other equity interest.

          "Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.

          "EBITDA" means, for any period, the sum of (a) net income for such
period, less (b) franchise taxes payable in Texas, plus (c) the following, to
the extent deducted in calculating net income for such period, (i) depreciation
expense and amortization expense for such period, (ii) interest expense in cost
of goods sold for such period, and (iii) interest expense from operations for
such period, all as determined for Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP.

          "Eligible Assignee" means (a) a Lender, (b) an Affiliate of a Lender,
(c) an Approved Fund, and (d) any other Person (other than a natural person)
approved by (i) Agent, (ii) in the case of any assignment of a Commitment or
portion thereof, the LC Issuers and the Swingline Lender, and (iii) unless an
Event of Default has occurred and is continuing, Borrower (each such approval
not to be unreasonably withheld or delayed); provided that notwithstanding the
foregoing, "Eligible Assignee" shall not include Borrower or any of Borrower's
Affiliates or Subsidiaries.

          "Eligible Investor" means a commercial bank, savings bank, savings and
loan association or other similar financial institution, insurance company or
mutual fund having total assets of $3,000,000,000 or more, generally engaged in
lending of the type contemplated by this Agreement and in full compliance with
all FDIC Control Act requirements or other regulatory requirements.

          "Environmental Laws" means: (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. 9601 et seq. ("CERCLA"),
(ii) the Resource Conservation and Recovery Act, as amended by the Hazardous and
Solid Waste Amendment of 1984, 42 U.S.C. 6901 et seq. ("RCRA"), (iii) the Clean
Air Act, 42 U.S.C. 7401 et seq., (iv) the Clean Water Act of 1977, 33 U.S.C.
1251 et seq., (v) the Toxic Substances Control Act, 15 U.S.C. 2601 et seq., (vi)
the Safe Drinking Water Act, 42 U.S.C. 300(E) et seq., (vii) the Refuse Act, 33
U.S.C. 407 et seq., (viii) the Texas Solid Waste Disposal Act, Tex. Health and
Safety Code, Section 361.001 et seq., (ix) the Texas Clean Air Act, Tex. Health
and Safety Code, Section 382.001 et seq., (x) the regulations promulgated
pursuant to the aforesaid laws, or any of them, and (xi) all other federal,
state or local laws, ordinances, orders, rules or regulations, now or hereafter
existing, that directly and/or indirectly relate to air pollution, water
pollution, noise control and/or the presence, storage, escape, seepage, leakage,
emission, release, use, spillage, generation, transportation, handling,
discharge, disposal or recovery of on-site or off-site hazardous or toxic
substances, wastes or materials and/or underground storage tanks, and as each


                                       8



and any of the foregoing laws, ordinances, orders, rules or regulations may be
amended or enacted from time to time.

          "Environmental Liability" means any claim, demand, obligation, cause
of action, accusation, allegation, order, violation, damage, injury, judgment,
injunction, penalty or fine, cost of enforcement, cost of cleanup, removal,
encapsulation or other remedial action, or any other cost or expense whatsoever,
including, without limitation, reasonable attorneys' fees and reimbursements,
resulting from the violation of any Environmental Law or the existence of
Hazardous Material in violation of any Environmental Law, or the imposition of
any Environmental Lien.

          "Environmental Lien" means a Lien in favor of any Person arising as a
result of or securing (i) any liability under an Environmental Law or (ii)
damages arising from or costs incurred by any Person in response to any actual
or threatened Hazardous Discharge.

          "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.

          "Eurocurrency Reserve Requirements" shall mean, for any day as applied
to a LIBOR Rate Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal Reserve
System or other Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board of
Governors of the Federal Reserve System) maintained by a member bank of the
Federal Reserve System.

          "Event of Default" shall mean any of the events specified in Article 9
hereof, provided that any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.

          "Excluded Taxes" means, with respect to Agent, any Lender, any LC
Issuer or any other recipient of any payment to be made by or on account of any
obligation of Borrower hereunder, (a) taxes imposed on or measured by its
overall net income (however denominated), and franchise taxes imposed on it (in
lieu of net income taxes) by the jurisdiction (or any political subdivision
thereof) under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable Lending Office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by Borrower under Section
3.10 hereof), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party hereto (or
designates a new Lending Office) or is attributable to such Foreign Lender's
failure or inability (other than as a result of a Change in Law) to comply with
Section 3.6(e) hereof, except to the extent that such Foreign Lender (or its
assignor, if any) was entitled, at the time of designation of a new Lending
Office (or assignment), to receive additional amounts from Borrower with respect
to such withholding tax pursuant to Section 3.6(a) hereof.


                                       9



          "Existing Credit Agreement" shall have the meaning set forth in the
introductory paragraphs of this Agreement.

          "Extension Request" shall have the meaning set forth in Section 2.7(b)
hereof.

          "Facility Increase Request" shall have the meaning set forth in
Section 2.6(b)(i) hereof.

          "Facility L/C" shall mean an irrevocable standby Letter of Credit,
including any extensions or renewals, (a) issued by an LC Issuer pursuant to
this Agreement or (b) issued by an LC Issuer pursuant to the Existing Credit
Agreement and which will remain in place as of the date of this Agreement, in
which each Lender agrees to purchase a participation equal to its Ratable Share
and the LC Issuer agrees to make payments in Dollars for the account of
Borrower, on behalf of Borrower or any Subsidiary thereof in respect of
obligations of Borrower or such Subsidiary incurred pursuant to contracts made
or performances undertaken or to be undertaken or like matters relating to
contracts to which Borrower or such Subsidiary is or proposes to become a party
in the ordinary course of Borrower's or such Subsidiary's real estate operations
in the United States. The term "Facility L/C" shall not include any Letters of
Credit issued by any Lender other than pursuant to this Agreement or as provided
in clause (b) of this definition.

          "Facility L/C Application" shall have the meaning set forth in Section
2.15(a) hereof.

          "Facility L/C Collateral Account" shall have the meaning set forth in
Section 8.1 hereof.

          "Facility L/C Fee" shall mean a fee, payable with respect to each
Facility L/C issued by an LC Issuer, in an amount per annum equal to the product
of the face amount of such Facility L/C and the Applicable Facility L/C Rate, in
each case as such Applicable Facility L/C Rate is determined on a daily basis
during the period in respect of which such fee is payable hereunder.

          "Facility L/C Obligations" shall mean, at any date, the sum of (i) the
aggregate undrawn face amount of all outstanding Facility L/Cs on such date,
plus (ii) the aggregate unpaid amount of all Reimbursement Obligations on such
date.

          "Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided, however, that (a) if the day for which such
rate is to be determined is not a Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Business Day
as so published on the next succeeding Business Day, and (b) if such rate is not
so published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Agent on such Business Day on such
transactions as determined by Agent.


                                       10



          "Finished Lot" means a fully developed single-family residential lot
owned by Borrower or any Subsidiary Guarantor with respect to which all
development and construction work has been completed (including completion of
all public or private roadways necessary to provide sufficient access to such
lot and completion of all water, sanitary and storm sewer facilities in
capacities sufficient for single-family residential use) so that such lot is
ready and of sufficient size for a residence or condominium project to be
constructed thereon. The term "Finished Lot" shall not include any land upon
which the construction of a residential unit has commenced or lots that fall
under the definition of a Presold Housing Unit and have all permitting necessary
to commence construction in place.

          "Foreign Lender" means any Lender that is organized under the laws of
a jurisdiction other than that in which Borrower is resident for tax purposes.
For purposes of this definition, the United States of America, each State
thereof and the District of Columbia shall be deemed to constitute a single
jurisdiction.

          "Fund" means any Person (other than a natural person) that is (or will
be) engaged in making, purchasing, holding or otherwise investing in commercial
loans and similar extensions of credit in the ordinary course of its business.

          "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect at the time any determination is made or
financial statement is required hereunder as promulgated by the American
Institute of Certified Public Accountants, the Accounting Principles Board, the
Financial Accounting Standards Board or any other body existing from time to
time which is authorized to establish or interpret such principles, applied on a
consistent basis throughout any applicable period, subject to any change
required by a change in GAAP; provided, however, that if any change in generally
accepted accounting principles from those applied in preparing the financial
statements referred to in Section 4.1 hereof affects the calculation of any
financial covenant contained herein, Borrower, Lenders and Agent hereby agree to
amend the Agreement to the effect that each such financial covenant is not more
or less restrictive than such covenant as in effect on the date hereof using
generally accepted accounting principles consistent with those reflected in such
financial statements.

          "Governmental Authority" means the government of the United States of
America or any other nation, or of any political subdivision thereof, whether
state or local, and any agency, authority, instrumentality, regulatory body,
court, central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government (including any supra-national bodies such as the European Union or
the European Central Bank).

          "Guarantors" means, collectively, the Owner Guarantors and the
Subsidiary Guarantors.

          "Guaranty Agreements" means, collectively, the Owner Guaranty
Agreement and the Subsidiary Guaranty Agreement.

          "Hazardous Discharge" means the happening of any event involving the
presence, disposal, escape, seepage, leakage, emission, release, use, storage,
spillage, discharge,


                                       11



investigation, cleanup, removal or remediation of any Hazardous Material which
violates any Environmental Law.

          "Hazardous Material" shall mean one or more of the following
substances:

               (a) those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances" or "solid
waste" in any one or more of the Environmental Laws or the Hazardous Material
Transportation Act (49 U.S.C.) or in the regulations promulgated pursuant to
said laws;

               (b) those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto);

               (c) such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or the United
States government, or which are classified as hazardous or toxic under federal,
state or local laws, orders, ordinances, rules or regulations; and

               (d) any material, waste or substances which are: (i) asbestos,
(ii) polychlorinated biphenyls, (iii) explosives, (iv) radioactive materials,
(v) gasoline, (vi) petroleum, (vii) petroleum products or (viii) related or
similar materials or substances.

          "Housing Unit" means a single-family attached or detached dwelling
(including a condominium), including the Lot on which such dwelling is located,
that is or will be available for sale by Borrower or any Subsidiary Guarantor
that is proposed to be in the Borrowing Base. Each "Housing Unit" is a Presold
Housing Unit, a Speculative Housing Unit or a Model Housing Unit.

          "Housing Unit Closing" shall mean a closing of the sale of a Housing
Unit by Borrower or a Subsidiary Guarantor to a bona fide purchaser for value
that is not a Subsidiary or Affiliate of the Borrower.

          "Improvements" shall mean all Housing Units and any other
improvements, buildings, structures, equipment and amenities located on the Lots
owned by Borrower or any Subsidiary Guarantor.

          "Increase Date" shall have the meaning set forth in Section 2.6(b)(ii)
hereof.

          "Indebtedness" shall mean, without duplication, with respect to any
Person (a) indebtedness or liability for borrowed money, including, without
limitation, subordinated indebtedness (other than trade accounts payable and
accruals incurred in the ordinary course of business); (b) obligations evidenced
by debentures, notes, bonds, or other similar instruments; (c) obligations for
the deferred purchase price of property (including, without limitation, seller
financing of any inventory) or services; (d) obligations as lessee under Capital
Leases to the extent that the same would, in accordance with GAAP, appear as
liabilities in such Person's consolidated balance sheet; (e) current liabilities
in respect of unfunded vested benefits under


                                       12



Plans and incurred withdrawal liability under any Multiemployer Plan; (f)
obligations under acceptance facilities; (g) all Contingent Obligations,
provided, however, that "Indebtedness" shall not include reimbursement
obligations in respect of Performance Letters of Credit or guaranties of
performance obligations (such as bid or performance surety bonds) except to the
extent that any such reimbursement obligations or guaranties of performance
obligations have been drawn or called upon; (h) obligations secured by any Liens
on any property of such Person, whether or not the obligations have been assumed
(provided that if such Person has not assumed such obligation, such Indebtedness
shall be deemed to be in an amount equal to the lesser of the aggregate amount
of such Indebtedness and the fair market value of the property to which such
Lien relates as determined in good faith by such Person); and (i) net
liabilities under Interest Rate Contracts, exchange or cap agreements (valued as
the termination value thereof, computed in accordance with a method approved by
the International Swaps and Derivatives Association and agreed to by such Person
in the applicable agreement).

          "Indemnified Taxes" means Taxes other than Excluded Taxes.

          "Indemnitee" shall have the meaning set forth in Section 11.6(b)
hereof.

          "Indenture" shall mean that certain Indenture dated as of September
21, 2005 among Borrower, Ashton Woods Finance Co., the guarantors party thereto
and U.S. Bank National Association, as trustee, as modified from time to time.

          "Intangible Assets" shall mean, at any time, the amount (to the extent
reflected in determining consolidated stockholders or members equity of
Borrower) of all unamortized debt discount and expense, unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names, copyrights
and all other items which would be treated as intangibles on a consolidated
balance sheet of Borrower prepared in accordance with GAAP.

          "Interest Coverage Ratio" shall mean, for any period, the ratio of (a)
EBITDA for such period to (b) Interest Expense for such period.

          "Interest Expense" means, for any period of four (4) consecutive
fiscal quarters of Borrower, all interest incurred (whether expensed or
capitalized and including interest on Subordinated Indebtedness) of Borrower on
a consolidated basis for such period, as determined in accordance with GAAP.

          "Interest Payment Date" shall mean, (a) with respect to any ABR Loan
(whether a Revolving Credit Loan or a Swingline Loan), the first day of each
calendar month, commencing on the first of such days to occur after the first
Borrowing Date, and (b) with respect to any LIBOR Rate Loan, the last day of the
Interest Period applicable thereto.

          "Interest Period" shall mean with respect to any LIBOR Rate Loan:

          (i) initially, the period commencing on the Borrowing Date or
     conversion date, as the case may be, with respect to such LIBOR Rate Loan
     and ending one month thereafter; and


                                       13



          (ii) thereafter, each period commencing on the last day of the next
     preceding Interest Period applicable to such LIBOR Rate Loan and ending one
     month thereafter;

provided that all of the foregoing provisions relating to Interest Periods are
subject to the following:

          (1) if any Interest Period would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period shall end
on the immediately preceding Business Day;

          (2) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of a calendar month; and

          (3) no Interest Period shall be for less than one month, and Borrower
shall not select an Interest Period for a LIBOR Rate Loan as a Revolving Credit
Loan if the last day of such Interest Period would be after the last day of the
Commitment Period.

          "Interest Rate Contract" shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
insurance arrangement, or any other agreement or arrangement designed to provide
protection against fluctuation in interest rates.

          "Inventory Valuation Date" shall mean (a) the second (2nd) to last
Tuesday of the most recent calendar month with respect to which the Borrower is
required to have delivered a Borrowing Base Certificate pursuant to Section 6.3
hereof or (b) if Borrower elects, pursuant to Section 6.4 hereof, to deliver a
Borrowing Base Certificate as of a later date, such later date.

          "Joint Venture" shall mean any Person in which the Borrower or a
Subsidiary holds any stock, partnership interest, joint venture interest,
limited liability company interest or other equity interest and that is either
(i) identified on Schedule 5 hereto or (ii) identified by Borrower as a "Joint
Venture" in a notice delivered to Agent from time to time after the Closing
Date.

          "Land" shall mean land owned by Borrower or a Subsidiary Guarantor,
which land is being developed or is held for future development or sale.

          "Land Value" means, at any time, the sum of the net book value of (a)
Unimproved Entitled Land, (b) Lots Under Development, and (c) Finished Lots.

          "LC Issuer" shall mean Wachovia Bank in its capacity as issuer of
Facility L/Cs hereunder, and any other Lender that may from time to time be
designated as an LC Issuer in accordance with the provisions of Section 2.14
hereof.

          "Lenders" shall have the meaning set forth in the preamble hereof.


                                       14



          "Lending Office" shall mean with respect to a Lender, the office,
branch, subsidiary or affiliate of such Lender identified in the Administrative
Questionnaire delivered by such Lender to Agent or otherwise selected by such
Lender pursuant to Section 2.3(c) hereof.

          "Letter of Credit" of a Person shall mean a letter of credit or
similar instrument which is issued by a financial institution upon the
application of such Person or upon which such Person is an account party or for
which such Person is in any way liable.

          "Level" shall mean the level of the Applicable Margin or Applicable
Unused Fee Rate (as applicable) as designated in the table set forth in Section
2.5(b) hereof. The three Levels in such table are identified as Levels I through
III, and Level I shall constitute the highest Level and Level III shall
constitute the lowest Level.

          "Leverage Ratio" means, for any fiscal quarter of Borrower, the ratio
of (a) Total Liabilities on the last day of such fiscal quarter to (b) Adjusted
Tangible Net Worth on the last day of such fiscal quarter.

          "LIBOR Base Rate" shall mean, with respect to each LIBOR Rate Loan for
the relevant Interest Period, the applicable British Bankers' Association London
interbank offered rate for deposits in Dollars as reported by any generally
recognized financial information service selected by the Agent as of 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
and having a maturity equal to such Interest Period.

          "LIBOR Rate" shall mean, with respect to each day during each Interest
Period pertaining to a LIBOR Rate Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):

                       LIBOR Base Rate
          ----------------------------------------
          1.00 - Eurocurrency Reserve Requirements

          "LIBOR Rate Loans" shall mean any Revolving Credit Loan when and to
the extent that the interest rate thereon is determined by reference to the
LIBOR Rate.

          "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, charge, encumbrance, lien (statutory or other),
preference, priority or other security agreement or similar preferential
arrangement of any kind or nature whatsoever (including without limitation any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the
authorized filing by or against a Person of any financing statement as debtor
under the Uniform Commercial Code or comparable law of any jurisdiction).

          "Little Shots" shall mean Little Shots Nevada L.L.C., a Nevada limited
liability company.

          "Loan Documents" shall mean this Agreement, the Notes, the Guaranty
Agreements and the Facility L/C Applications and all other documents (if any)
from time to time executed and delivered by Borrower or a Guarantor that
evidence, secure or guarantee any of the Obligations.


                                       15



          "Loans" shall mean the Revolving Credit Loans and the Swingline Loans.

          "Lot" shall mean a Finished Lot or a lot that is part of Lots Under
Development that Borrower or any Subsidiary Guarantor intends to make into a
Finished Lot.

          "Lots Under Development" means all Unimproved Entitled Land with
respect to which Borrower or any Subsidiary Guarantor has obtained all necessary
approvals for its subdivision for residential housing units (including
condominium units), and which Borrower or any Subsidiary Guarantor is actively
developing into Finished Lots, or which Borrower or any Subsidiary Guarantor
reasonably expects to begin development activity within a nine (9) month period;
provided, however, that the term "Lots Under Development" shall not include any
land upon which the construction of a residential housing unit has commenced.

          "Mandatory Borrowing" shall have the meaning set forth in Section
2.12(d) hereof.

          "Maturity Date" shall mean January 19, 2010 or such later date as
determined in accordance with Section 2.7(b).

          "Maximum Swingline Amount" shall mean Ten Million Dollars
($10,000,000).

          "Model Housing Unit" shall mean a Housing Unit constructed in an
ongoing active project initially for inspection by prospective purchasers that
is not intended to be sold until all or substantially all other Housing Units in
the applicable subdivision are sold.

          "Moody's" shall mean Moody's Investors Service, Inc., and any
successor thereto.

          "Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement as described in Section 3(37) of
ERISA to which Borrower or any Commonly Controlled Entity is a party to which
more than one employer is obligated to make contributions.

          "New Lender" shall have the meaning set forth in Section 2.6(b)(i)
hereof.

          "Non-Recourse Indebtedness" means, with respect to any Person, any
Indebtedness of such Person for which the owner of such Indebtedness has no
recourse, directly or indirectly, to such Person for the principal of, premium,
if any, and interest on such Indebtedness, and for which such Person is not
directly or indirectly obligated or otherwise liable for the principal of,
premium, if any, and interest on such Indebtedness, except with respect to
Property of such Person pursuant to mortgages, deeds of trust or other security
interests to which such Indebtedness relates, provided that recourse obligations
or liabilities solely for fraud, environmental matters and other customary
"non-recourse carve-outs" in respect of any Indebtedness will not prevent
Indebtedness from being classified as Non-Recourse Indebtedness.

          "Note" or "Notes" shall mean a promissory note or notes substantially
in the form of Exhibit C hereto, executed and delivered by Borrower payable to
the order of a Lender, and


                                       16



delivered pursuant to Section 2.2, Section 2.6(b) or any other provision hereof,
as the same may be modified, amended, supplemented or replaced from time to
time.

          "Notice of Borrowing" shall have the meaning set forth in Section
2.3(a) hereof and shall be in the form of Exhibit H hereto.

          "Notice of Conversion/Continuation" shall have the meaning set forth
in Section 3.1 hereof and shall be in the form of Exhibit I hereto.

          "Obligations" shall mean all unpaid principal of and accrued and
unpaid interest on the Loans, all Reimbursement Obligations, all accrued and
unpaid fees and all expenses, reimbursements, indemnities and other obligations
of Borrower and any Guarantor to the Lenders or to any Lender, Agent, LC Issuer
or any Indemnitee arising under the Loan Documents and including interest and
fees that accrue after the commencement by or against Borrower or any Guarantor
or any Affiliate thereof of any bankruptcy or similar proceeding naming such
Person as the debtor in such proceeding, regardless of whether such interest and
fees are allowed claims in such proceeding.

          "OFAC" shall mean the U.S. Department of the Treasury's Office of
Foreign Assets Control.

          "Other Taxes" means all present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies arising from
any payment made hereunder or under any other Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement or any other Loan Document.

          "Outstanding Credit Exposure" means, as to any Lender at any time, the
sum of (i) the aggregate outstanding principal amount of its Loans (other than
Swingline Loans) outstanding at such time, plus (ii) an amount equal to its
Ratable Share of the Facility L/C Obligations at such time, plus (iii) an amount
equal to its Ratable Share of the Swingline Loans at such time.

          "Owner Guarantor" means each Person that is a party to the Owner
Guaranty Agreement from time to time, which, as of the date of this Agreement,
is each Person listed on Schedule 3 hereto.

          "Owner Guaranty Agreement" shall mean the First Amended and Restated
Guaranty Agreement substantially in the form of Exhibit B-2 attached to this
Agreement, executed by one or more Owner Guarantors in favor of Agent (for the
benefit of the Lenders), as the same may be modified and supplemented and in
effect from time to time.

          "Participant" has the meaning set forth in Section 11.7 (d) hereof.

          "PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.

          "Performance Letter of Credit" shall mean any Letter of Credit of
Borrower or a Subsidiary that is issued for the benefit of a municipality, other
governmental authority, utility,


                                       17



water or sewer authority, or other similar entity for the purpose of assuring
such beneficiary of the Letter of Credit of the proper and timely completion of
construction work.

          "Permitted Liens" shall mean the following: (i) Liens for taxes,
assessments or other governmental charges or levies not yet due or which are
being contested in good faith by appropriate action; (ii) Liens in connection
with worker's compensation, unemployment insurance or other social security, old
age pension or public liability obligations (other than any Lien imposed by
ERISA); (iii) Liens in favor of property owners' associations securing payment
of assessments or other charges; (iv) easements, rights-of-way, restrictions,
plats, declarations of covenants, conditions and restrictions, condominium
declarations, or similar encumbrances on the use of real property which do not
interfere with the ordinary conduct of business of Borrower or any Subsidiary
Guarantor or materially detract from the value of such real property; (v) Liens
in favor of a seller of Unimproved Entitled Land, Lots Under Development or
Finished Lots requiring Borrower or any Subsidiary Guarantor to make a payment
upon the future sale of such Unimproved Entitled Land, Lots Under Development or
Finished Lots in an amount not to exceed five percent (5%) of the gross sales
price or in the case of profit sharing agreements an amount that is reasonable
and customary in the industry and market; and (vi) any Liens of mechanics,
materialmen or material suppliers incurred in the ordinary course of business
if, with respect to any such Liens securing Indebtedness that is past due, (A)
such Liens are being contested in good faith by appropriate proceedings for
which adequate reserves determined in accordance with GAAP have been established
and as to which the property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof or (B) a corresponding deduction is
made to the Borrowing Base Availability so as to deduct from the Borrowing Base
Availability the amount secured by any such Lien on any asset included in the
current Borrowing Base calculation.

          "Person" shall mean an individual, a partnership, a limited liability
company, a corporation, a business trust, a joint stock company, a trust, an
unincorporated association, a Governmental Authority or any other entity of
whatever nature (including without limitation a joint venture).

          "Plan" shall mean any pension plan which is covered by Title IV of
ERISA and in respect of which Borrower or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.

          "Premises" shall mean Unimproved Entitled Land, Lots Under
Development, Finished Lots, Housing Units, the improvements thereon, all
fixtures, equipment, leases, rentals and personal property of any kind or
character now or hereafter related to, situated on or used in connection with
Unimproved Entitled Land, Lots Under Development, Finished Lots or Housing Units
owned by Borrower or any Subsidiary Guarantor or in any improvements now or
hereafter constructed thereon, and all related parts, accessions and accessories
thereto and all replacements or substitutions therefor, as well as all other
improvements, benefits and appurtenances now or hereafter placed thereon or
accruing thereto.

          "Presold Housing Unit" means a Housing Unit which is subject to a
valid, bona-fide agreement of sale that (a) is with an unrelated third-party
purchaser, for fair market value, (b) provides for a cash deposit of an amount
comparable with market standards for a percentage


                                       18



of the purchase price (if required by state law, deposits will be held either
(i) by an independent third party (i.e. a real estate broker) or (ii) in an
escrow account of Borrower placed with a Lender), (c) is not subject to, or
conditioned upon, the sale or lease by the purchaser of any existing real
property owned by the purchaser, and (d) contains no contingency other than for
a mortgage commitment which is not to exceed ninety-five percent (95%) of the
gross sales price of the Housing Unit (or, if permitted by Agent in its
reasonable discretion, any mortgage contingency for a loan in excess of
ninety-five percent (95%) of the sales price so long as certification of
pre-approval from a mortgage lender reasonably acceptable to Agent has been
obtained), and which is not contingent upon the sale or lease of any other real
estate (although if the financing commitment does include such sale or lease
contingency, such contingency must be specifically excluded in the agreement of
sale relating to such Housing Unit).

          "Prime Rate" means that interest rate so denominated and set by
Wachovia Bank from time to time as an interest rate basis for borrowings. The
Prime Rate is but one of several interest rate bases used by Wachovia Bank.
Wachovia Bank lends at interest rates above and below the Prime Rate.

          "Proceeds after Default" shall have the meaning set forth in Article 9
hereof.

          "Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, which is owned by
Borrower or any Subsidiary.

          "Public Indebtedness" means Indebtedness of Borrower or any Subsidiary
evidenced by notes, debentures, or other similar instruments issued after the
date of this Agreement pursuant to either (i) a registered public offering or
(ii) a private placement of such instruments in accordance with an exemption
from registration under the Securities Act of 1933 and/or the Securities
Exchange Act of 1934 or similar law.

          "Quarterly Payment Date" shall have the meaning set forth in Section
2.18 hereof.

          "Ratable Share" shall mean, with respect to any Lender on any date,
the ratio of (a) the amount of the Commitment of such Lender to (b) the
Aggregate Commitment.

          "Rate Hedging Obligations" of a Person means any and all obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.

          "Refinancing Indebtedness" means Indebtedness that refunds, refinances
or extends any Indebtedness (or that refunds, refinances or extends any
refunding, refinancing or extension of such Indebtedness), but only to the
extent that:


                                       19



          (i) the Refinancing Indebtedness is subordinated to or pari passu with
     the Obligations to the same extent as the Indebtedness being refunded,
     refinanced or extended,

          (ii) the Refinancing Indebtedness is scheduled to mature no earlier
     than the then current maturity date of such Indebtedness,

          (iii) such Refinancing Indebtedness is in an aggregate amount that is
     equal to or less than the sum of the aggregate amount then outstanding plus
     all amounts committed but undisbursed under the Indebtedness being
     refunded, refinanced or extended,

          (iv) the Person or Persons liable for the payment of such Refinancing
     Indebtedness are the same Person or Persons (or successor(s) thereto) that
     were liable for the Indebtedness being refunded, refinanced or extended
     when such Indebtedness was initially incurred, and

          (v) such Refinancing Indebtedness is incurred within one hundred
     twenty (120) days after the Indebtedness being refunded, refinanced or
     extended is so refunded, refinanced or extended.

          "Register" has the meaning set forth in Section 11.7(c) hereof.

          "Reimbursement Obligations" shall mean Borrower's obligations to
reimburse an LC Issuer as a result of draws on one or more Facility L/Cs.

          "Rejecting Lender" shall have the meaning set forth in Section 2.7(b)
hereof.

          "Rejecting Lender's Facility Termination Date" shall have the meaning
set forth in Section 2.7(b) hereof.

          "Related Parties" means, with respect to any Person, such Person's
Affiliates and the partners, directors, officers, employees, agents and advisors
of such Person and of such Person's Affiliates.

          "Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.

          "Required Lenders" shall mean, at any particular time, Lenders having
at least 66-2/3% of the Aggregate Commitment or, if the Aggregate Commitment has
been terminated, Lenders having at least 66-2/3% of the aggregate amount of the
Revolving Credit Loans then outstanding.

          "Requirement of Law" shall mean as to any Person, the Certificate (or
Articles) of Incorporation, By-Laws (or Code of Regulations), or other
organizational or governing documents of such Person, and any law, treaty, rule
or regulation, or determination, including without limitation all environmental
laws, rules, regulations and determinations, of an arbitrator


                                       20



or a court or other Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to which such Person or any
of its properly is subject.

          "Responsible Officer" shall mean as to Borrower or any of its
Subsidiaries, Tom Krobot or Bob Salomon or any person or persons succeeding them
and assuming their responsibilities with respect to Borrower or such Subsidiary
and, with respect to financial matters and matters described in Section 3.8
hereof, Seymour Joffe or Bob Salomon or any person or persons succeeding them
and assuming their responsibilities with respect to Borrower or such Subsidiary.

          "Revolving Credit Loans" shall mean the revolving credit loans made
pursuant to this Agreement that are more particularly described in Section 2.1
hereof.

          "S&P" shall mean Standard & Poor's Rating Services, and any successor
thereto.

          "Sanctioned Entity" shall mean (i) an agency of the government of,
(ii) an organization directly or indirectly controlled by, or (iii) a person
resident in a country that is subject to a sanctions program identified on the
list maintained by OFAC and available at
http://www.treas.gov/offices/eotffc/ofac/sanctions/index.html, or as otherwise
published from time to time as such program may be applicable to such agency,
organization or person.

          "Secured Indebtedness" shall mean all Indebtedness of Borrower or any
of its Subsidiaries (excluding Indebtedness owing to Borrower or any of its
Subsidiaries) that is (a) secured by a Lien on assets of Borrower or any of its
Subsidiaries or (b) supported by a guarantee of Borrower or any Subsidiary
(including without limitation purchase money Indebtedness, Non-Recourse
Indebtedness, obligations under sale/leaseback transactions and obligations
under Capital Leases) and in either case is Indebtedness permitted under Section
7.9 hereof; provided, however, that Indebtedness under the Subordinated Notes
shall not be Secured Indebtedness solely by reason of clause (b) of this
definition.

          "Shareholder Notes" means (i) those notes identified on Schedule 4
hereto, and (ii) any other notes like those notes referenced in clause (i) of
this definition that are unsecured, subordinated to the Obligations pursuant to
provisions satisfactory to Agent, contain repayment and other provisions
satisfactory to Agent in its sole discretion and in the aggregate (together with
the notes referred to in clause (i) of this definition) do not exceed
$15,000,000 at any time outstanding.

          "Single Employer Plan" shall mean any Plan which is not a
Multiemployer Plan (as defined in ERISA).

          "Speculative Housing Unit" shall mean any Housing Unit owned by
Borrower or any Subsidiary Guarantor that is not a Presold Housing Unit or a
Model Housing Unit.

          "Subordinated Indebtedness" shall mean, at any date, (i) the unsecured
Indebtedness of Borrower or any Subsidiary under the Subordinated Notes
outstanding at such date, (ii) Indebtedness evidenced by the Shareholder Notes
and outstanding at such date, and (iii) all other future unsecured subordinated
Indebtedness of Borrower, the terms and manner (including without limitation the
terms and manner with respect to subordination) of which are


                                       21



satisfactory to Agent in its sole discretion and approved in writing by Agent
and which is subordinate to the Obligations.

          "Subordinated Notes" means the 9.5% Senior Subordinated Notes due 2015
issued pursuant to the Indenture and any other notes, debentures or other
similar instruments issued by the Borrower or any Subsidiary after the date of
this Agreement pursuant to either (i) a registered public offering or (ii) a
private placement of such instruments in accordance with an exemption from
registration under the Securities Act of 1933 and/or the Securities Exchange Act
of 1934 or similar law, and which meet the following requirements:

               (a) the maturity date of, and any amortization pursuant to, such
     instruments must be a date at least twelve (12) months after the Maturity
     Date;

               (b) such instruments must contain subordination and other
     provisions satisfactory to the Agent in its sole discretion (including
     without limitation standstill provisions and provisions requiring blockage
     of all payments thereunder for a period of at least 179 days upon the
     occurrence of an Event of Default); and

               (c) any covenants, terms, provisions and events of default
     contained in such instruments (or in any agreement or indenture under which
     such instruments are issued) must be less restrictive, taken as a whole,
     than the covenants, terms, provisions and events of default in this
     Agreement, as determined by Agent in its sole discretion.

          "Subsidiary" shall mean, as to any Person, a corporation, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, limited liability company or other entity are at the time owned, or
the management of which is otherwise controlled, directly, or indirectly through
one or more intermediaries, or both, by such Person, and with respect to
Borrower shall include all Subsidiaries of Subsidiaries of Borrower, provided
that no Joint Venture will be a Subsidiary. Unless otherwise specified,
"Subsidiary" means a Subsidiary of Borrower (including Subsidiaries of
Subsidiaries).

          "Subsidiary Guarantor" shall mean each of Borrower's Subsidiaries
listed on Schedule 2 hereto and each Subsidiary of Borrower which becomes a
"Subsidiary Guarantor" pursuant to a Supplemental Subsidiary Guaranty as
provided in Section 6.13 (a) hereof.

          "Subsidiary Guaranty Agreement" shall mean the First Amended and
Restated Guaranty Agreement substantially in the form of Exhibit B-1 attached to
this Agreement, executed by one or more Subsidiary Guarantors in favor of Agent
(for the benefit of the Lenders), as the same shall be modified and supplemented
and in effect from time to time.

          "Subsidiary Owner Guaranty" shall have the meaning set forth in the
Owner Guaranty Agreement.


                                       22



          "Supplemental Subsidiary Guaranty" shall have the meaning set forth in
the Subsidiary Guaranty Agreement.

          "Swingline Expiry Date" shall mean the date which is five (5) Business
Days prior to the Maturity Date.

          "Swingline Lender" means Wachovia Bank in its capacity as lender of
Swingline Loans.

          "Swingline Loan" shall have the meaning set forth in Section 2.12
hereof.

          "Tangible Net Worth" shall mean, at any date, (a) the sum of (i) the
consolidated stockholders or members equity of Borrower determined in accordance
with GAAP plus (ii) the outstanding principal amount of Shareholder Notes, less
(b) Intangible Assets, all determined as of such date.

          "Taxes" means all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
Governmental Authority, including any interest, additions to tax or penalties
applicable thereto.

          "Total Liabilities" means (a) all liabilities as shown on Borrower's
consolidated balance sheet in accordance with GAAP (including any Subordinated
Notes) excluding trade payables in the normal course of business, bonus accruals
outstanding less than sixty (60) days, and excluding Shareholder Notes payable,
(b) all outstanding loan balances associated with recourse obligations of
Borrower or any Subsidiary not shown on Borrower's consolidated balance sheet
including guarantees, (c) the principal amount of all surety bonds, letters of
credit and/or tri-party agreements whether presented for payment or not but
excluding performance related liabilities for which payment has not been
demanded, by the beneficiary and for which reimbursement by Borrower or any
Subsidiary has not been made, and (d) net liabilities of Borrower or any of its
Subsidiaries under Interest Rate Contracts.

          "Uniform Customs" shall mean the Uniform Customs and Practice for
Documentary Credits, 1993 revision, ICC Publication No. 500, or amendment
thereof or successor thereto referenced in any LC Issuer's issued letters of
credit.

          "Unimproved Entitled Land" means land owned by Borrower or any
Subsidiary Guarantor which is zoned to permit single-family residential
development (attached or detached) as a use by right (or comparable
classification under local law).

          "Unused Fee" shall have the meaning set forth in Section 2.4 hereof.

          "Wachovia Bank" means Wachovia Bank, National Association, a national
banking association.

          1.2 Other Definitional Provisions.

               (a) All terms defined in this Agreement shall have the defined
meanings when used in any other Loan Document unless otherwise defined therein.


                                       23



               (b) As used herein or in any other Loan Document, accounting
terms relating to Borrower and its Subsidiaries not defined in Section 1.1
hereof, to the extent not defined, shall have the respective meanings given to
them under GAAP.

               (c) Any reference to "value" of property shall mean the lower of
cost or market value of such property, determined in accordance with GAAP.

               (d) The definition of any document or instrument includes all
schedules, attachments and exhibits thereto and all renewals, extensions,
supplements and amendments thereof; terms otherwise defined herein have the same
meanings throughout this Agreement.

               (e) "Hereunder," "herein," "hereto," "this Agreement" and words
of similar import refer to this entire document; "including" is used by way of
illustration and not by way of limitation, unless the context clearly indicates
the contrary; and the singular includes the plural and conversely.

          ARTICLE 2: AMOUNT AND TERMS OF COMMITMENTS, REVOLVING CREDIT
                    LOANS, SWINGLINE LOANS AND FACILITY L/CS

          2.1 Commitments.

               (a) Each Lender severally agrees, on the terms and conditions
hereinafter set forth, to make Revolving Credit Loans to Borrower from time to
time during the Commitment Period, and to purchase undivided interests and
participations in Facility L/Cs in accordance with Section 2.16 hereof, in an
aggregate principal amount of Revolving Credit Loans made by such Lender and of
such Lender's Ratable Share of the Facility L/C Obligations not to exceed at any
time outstanding the amount set forth in Schedule 1 hereto (such Lender's
obligations to make Revolving Credit Loans and to purchase undivided interests
and participations in Facility L/Cs in accordance with Section 2.16 hereof in
such amounts, as reduced, increased or otherwise modified from time to time
pursuant to the terms of this Agreement, being herein referred to as such
Lender's "Commitment"), subject to the limitations set forth in Section 2.1(b)
hereof.

               (b) No Revolving Credit Loan or Swingline Loan shall be made, nor
shall any Facility L/C be issued, that would have the effect of increasing the
then outstanding amount of the Borrowing Base Indebtedness to an amount
exceeding the Borrowing Base as of the most recent Inventory Valuation Date,
provided that a Revolving Credit Loan shall not be deemed to have increased the
amount of the Borrowing Base Indebtedness if, and only to the extent that, the
proceeds of such Revolving Credit Loan are immediately used to repay a Swingline
Loan.

               (c) No Revolving Credit Loans shall be made at any time that any
Swingline Loan is outstanding, except for Revolving Credit Loans that are used,
in whole or in part, on the day on which made, to repay in full the outstanding
principal balance of the Swingline Loans. During the Commitment Period and as
long as no Default or Event of Default exists, Borrower may borrow, prepay in
whole or in part and reborrow Revolving Credit Loans, all in accordance with the
terms and conditions hereof.


                                       24



               (d) Subject to the terms and conditions of this Agreement
(including the limitations on the availability of LIBOR Rate Loans and including
the termination of the Aggregate Commitment as set forth in Article 9 hereof),
the Revolving Credit Loans may from time to time be (i) LIBOR Rate Loans, (ii)
ABR Loans, or (iii) a combination thereof, as determined by Borrower and
notified to Agent in accordance with Section 2.3 hereof, provided that no
Revolving Credit Loan shall be made as a LIBOR Rate Loan after the day that is
one month prior to the last day of the Commitment Period.

          2.2 Notes. The Revolving Credit Loans made by Lenders pursuant hereto
shall be evidenced by Notes, payable to the order of each Lender in the amount
of its Commitment and evidencing the obligation of Borrower to pay the aggregate
unpaid principal amount of the Revolving Credit Loans made by such Lender, with
interest thereon as prescribed in Section 2.5 hereof. Each Lender is hereby
authorized to record electronically or otherwise the date and amount of each
Revolving Credit Loan disbursement made by such Lender, and the date and amount
of each payment or prepayment of principal thereof, and any such recordation
shall be conclusive absent manifest error as to the accuracy of the information
so recorded; provided, however, the failure of such Lender to make, or any error
in making, any such recordation(s) shall not affect the obligation of Borrower
to repay outstanding principal, interest, or any other Obligation due hereunder
or under the Notes in accordance with the terms hereof and thereof. Each Note
shall (a) be dated as of the date hereof, (b) be stated to mature on the
Maturity Date, which Maturity Date may be extended as provided in Section 2.7
hereof, and (c) bear interest for the period from and including the date thereof
on the unpaid principal amount thereof from time to time outstanding at the
applicable interest rate per annum determined as provided in Section 2.5 hereof.
Interest on each Revolving Credit Loan shall be payable as specified in Section
2.5 hereof.

          2.3 Procedure for Borrowing.

               (a) Borrower may borrow under the Commitments (subject to the
limitations on the availability of LIBOR Rate Loans), during the Commitment
Period, provided Borrower shall give Agent written notice (the "Notice of
Borrowing"), which Notice of Borrowing must be received (i) prior to 11:00 a.m.,
Charlotte, North Carolina time, at least three (3) Business Days prior to the
requested Borrowing Date for any borrowing of LIBOR Rate Loans, or (ii) prior to
10:00 a.m., Charlotte, North Carolina time on or before the requested Borrowing
Date for any borrowing of ABR Loans, which Notice of Borrowing shall be
irrevocable. Each Notice of Borrowing shall specify (A) the Borrowing Date
(which shall be a Business Day), (B) the amount of the requested borrowing
and(C) whether the borrowing is to be of LIBOR Rate Loans or ABR Loans. Each
borrowing pursuant to the Commitments shall be in the principal amount (1) in
the case of ABR Loans, of $1,000,000 or any larger amount which is an even
multiple of $100,000, and (2) in the case of LIBOR Rate Loans, of $10,000,000 or
any larger amount which is an even multiple of $1,000,000.

               (b) Subject to satisfaction of the terms and conditions of this
Agreement, each Lender shall deposit funds with Agent for the account of
Borrower by 2:00 p.m. Charlotte, North Carolina time on the Borrowing Date by
wire transfer or other immediately available funds equal to its Ratable Share of
the Revolving Credit Loans to be made on the Borrowing Date. The Loan(s) will
then promptly be made available to Borrower by Agent crediting the


                                       25



account of Borrower on the books of Agent with the aggregate amounts made
available to Agent by Lenders, and in like funds as received by Agent.

               (c) Each Lender may book its Loans and its participations in
Facility L/Cs at any Lending Office selected by such Lender and may change its
Lending Office from time to time. All terms of this Agreement shall apply to any
such Lending Office and the Loans and the Notes issued hereunder shall be deemed
held by each Lender for the benefit of any such Lending Office. Each Lender and
LC Issuer may, by written notice to the Agent and Borrower in accordance with
Section 11.2 hereof, designate replacement or additional Lending Offices through
which Loans will be made by it or Facility L/Cs will be issued by it and for
whose account Loan payments or a payment with respect to Facility L/Cs are to be
made.

               (d) Each ABR Loan shall continue as an ABR Loan unless and until
such ABR Loan is converted into a LIBOR Rate Loan pursuant to Section 3.1 hereof
or is repaid in accordance with Section 2.11 hereof. Each LIBOR Rate Loan shall
continue as a LIBOR Rate Loan until the end of the then applicable Interest
Period therefor, at which time such LIBOR Rate Loan shall be automatically
converted into an ABR Loan unless (x) such LIBOR Loan is or was repaid in
accordance with Section 2.11 hereof or (y) such LIBOR Rate Loan is continued as
a LIBOR Rate Loan in accordance with Section 3.1 hereof.

               (e) Notwithstanding anything to the contrary in this Agreement,
Borrower may submit no more than two (2) Notices of Borrowing in any calendar
month.

          2.4 Unused Fee. Borrower agrees to pay to Agent for the benefit of
each Lender an unused fee (the "Unused Fee") for the Commitment Period, computed
at the Applicable Unused Fee Rate per annum on the average daily unused amount
of each Lender's Commitment during the Commitment Period, payable quarterly in
arrears and due on each Quarterly Payment Date and on the last day of the
Commitment Period, commencing on the first of such dates to occur after the date
of this Agreement. For purposes of determining the unused portion of the
Aggregate Commitment and the unused portion of a Lender's Commitment hereunder,
the Aggregate Commitment shall be deemed used to the extent of the aggregate
face amount of the outstanding Facility L/Cs and Revolving Credit Loans and such
Lender's Commitment shall be deemed used to the extent of such Lender's Ratable
Share of the aggregate face amount of the outstanding Facility L/Cs and
Revolving Credit Loans made by such Lender. For purposes of determining the
Unused Fee payable to a Swingline Lender, its Swingline Loans shall be treated
as usage of its Commitment.

          2.5 Interest; Default Interest.

               (a) Except as provided in Section 2.5(d) hereof, (i) the
Revolving Credit Loans shall bear interest on the unpaid principal amount
thereof at a rate per annum equal to (y) in the case of ABR Loans, the Alternate
Base Rate in effect from time to time, plus the Applicable ABR Margin in effect
for such day (provided that, notwithstanding the table below, on any day that
the Alternate Base Rate is determined pursuant to the second proviso of the
definition of "Alternate Base Rate" in Section 1.1 hereof, the Applicable ABR
Margin for such day shall be 0%), and (z) in the case of LIBOR Rate Loans, the
LIBOR Rate determined for the Interest Period applicable thereto, plus the
Applicable LIBOR Margin in effect on the first day of


                                       26



such Interest Period, and (ii) the Swingline Loans shall bear interest on the
unpaid principal amount thereof at a rate per annum equal to the Alternate Base
Rate in effect from time to time, plus the Applicable ABR Margin in effect for
such day, plus 0.25%.

               (b) The Applicable Margins and the Applicable Unused Fee Rate
shall be determined by reference to the Leverage Ratio in accordance with the
following table and the provisions of this Section 2.5(b):



                             LEVEL I                 LEVEL II                LEVEL III
                             -------                 --------                ---------
                                                                    
Leverage Ratio               Less than or equal to   Greater than 1.00 to    Greater than 1.50 to 1.00
                             1.00 to 1.00            1.00 but less than or
                                                     equal to 1.50 to 1.00

Applicable LIBOR Margin      1.25%                   1.50%                   1.75%
and Applicable Facility
L/C Rate

Applicable ABR Margin        1.25%                   1.50%                   1.75%

Applicable Unused Fee Rate   0.20%                   0.20%                   0.25%


               (c) The Applicable Unused Fee Rate, the Applicable Facility L/C
Rate and the Applicable ABR Margin shall be adjusted from time to time,
effective on the fifth (5th) Business Day following delivery by Borrower,
pursuant to Section 6.1(a) or (b) hereof, of annual or quarterly financial
statements evidencing a change in the Leverage Ratio. The Applicable LIBOR
Margin in respect of any LIBOR Rate Loan shall be adjusted from time to time
effective on the first day of the Interest Period for any LIBOR Rate Loan after
the fifth (5th) Business Day following the delivery by Borrower, pursuant to
Section 6.1(a) or (b) hereof, of annual or quarterly financial statement
evidencing a change in the Leverage Ratio.

               (d) As of the date of this Agreement, the Applicable Margins and
Applicable Unused Fee Rate are at Level II.

               (e) If all or a portion of the principal amount of any of the
Revolving Credit Loans made hereunder (whether as ABR Loans or LIBOR Rate Loans
or a combination thereof) or the Swingline Loans or any installment of interest
on any Revolving Credit Loan or Swingline Loan or any Unused Fee or Facility L/C
Fee shall not be paid when due (whether at the stated maturity, by acceleration
or otherwise and after any applicable opportunity to cure), any such overdue
principal amount and, to the extent permitted by applicable law, any overdue
installment of interest on any Revolving Credit Loan or Swingline Loan or any
overdue payment of Unused Fee or Facility L/C Fee hereunder shall, without
limiting any other rights of Lenders, bear interest at a rate per annum which is
the sum of the Alternate Base Rate in effect from time to time, plus the
Applicable ABR Margin, plus four percent (4%), from the date of such non-


                                       27



payment until paid in full (before, as well as after, judgment); provided,
however, if all or any portion of any principal on any Revolving Credit Loan
made as a LIBOR Rate Loan hereunder shall not be paid when due and the then
current Interest Period for such LIBOR Rate Loan has not yet expired, the entire
principal amount of such LIBOR Rate Loan and, to the extent permitted by
applicable law, any overdue installment of interest on such LIBOR Rate Loan
shall, without limiting any other rights of Lenders, bear interest at a rate per
annum which is the sum of four percent (4%) plus the applicable non-default
interest rate (which is the sum of the applicable LIBOR Rate and the Applicable
LIBOR Margin) on such LIBOR Rate Loan then in effect from the date of such
non-payment until the expiration of the then current Interest Period with
respect to such LIBOR Rate Loan (before, as well as after, judgment);
thereafter, the entire principal amount of such LIBOR Rate Loan and, to the
extent permitted by applicable law, any overdue installment of interest on such
LIBOR Rate Loan shall, without limiting any other rights of Lenders, bear
interest at a rate per annum which is the sum of the Alternate Base Rate in
effect from time to time, plus the Applicable ABR Margin, plus four percent
(4%), until paid in full (before, as well as after, judgment).

               (f) Interest shall be payable in arrears and shall be due on each
Interest Payment Date and on the last day of the Commitment Period.

          2.6 Termination, Reduction or Increase of Aggregate Commitment.

               (a) (i) Borrower shall have the right to terminate the Aggregate
Commitment or, from time to time (and so long as no Event of Default exists),
reduce the amount of the Aggregate Commitment, upon not less than five (5)
Business Days' written notice to each Lender specifying either a reduction (and
the amount of such reduction) or termination.

               (ii) Any such reduction of the Aggregate Commitment shall be in
the amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof and
shall reduce permanently the amount of the Aggregate Commitment then in effect.
Any such reduction shall be accompanied by (A) prepayment of the Revolving
Credit Loans made hereunder to the extent, if any, that the sum of the amount of
such Revolving Credit Loans, Swingline Loans and the Facility L/C Obligations
then outstanding exceeds the amount of the Aggregate Commitment, as then
reduced, together with accrued interest on the amount so prepaid to the date of
such prepayment (provided that (i) no more than two (2) prepayments may be made
in any calendar month, (ii) prepayments shall be applied, first, to Base Rate
Loans and any excess to LIBOR Loans, and (iii) each prepayment must be in an
amount equal to at least $250,000), and (B) if a Revolving Credit Loan is a
LIBOR Rate Loan that is prepaid other than at the end of the Interest Period
applicable thereto, by any amounts payable pursuant to Section 3.5 hereof. If
after giving effect to any reduction of the Aggregate Commitment, the Maximum
Swingline Amount or the aggregate principal amount of the Facility L/C
Obligations permitted pursuant to Section 2.15(c)(ii) hereof exceeds the
Aggregate Commitment, the Maximum Swingline Amount or the aggregate principal
amount of Facility L/C Obligations permitted pursuant to Section 2.15(c)(ii)
hereof shall be reduced (or, in the case of Facility L/C Obligations, reduced or
cash collateralized) by such excess.

               (iii) Any such termination of the Commitment shall be accompanied
(A) by prepayment in full of the Loans then outstanding hereunder, together with
accrued


                                       28



interest thereon to the date of such prepayment, and the payment of any unpaid
Unused Fee then accrued hereunder; (B) with respect to Facility L/Cs, by
Borrower's compliance with the terms of Section 2.15 hereof; and (C) if a
Revolving Credit Loan is a LIBOR Rate Loan that is prepaid other than at the end
of the Interest Period applicable thereto, by any amounts payable pursuant to
Section 3.5 hereof.

               (iv) Any such reduction or termination of the Aggregate
Commitment shall be allocated to each Lender's Commitment ratably in accordance
with its Ratable Share.

               (b) (i) Subject to the provisions of this Section 2.6(b),
Borrower may, at any time and from time to time, request ("Facility Increase
Request"), by notice to Agent, an increase of the Aggregate Commitment within
the limitations hereinafter set forth, which Facility Increase Request shall set
forth the amount of such requested increase. Within twenty (20) days of such
Facility Increase Request, the Aggregate Commitment may be so increased either
by having one or more Eligible Assignees (other than Lenders then holding a
Commitment hereunder) approved by Borrower and Agent (which consents will not be
unreasonably withheld) (each a "New Lender") become Lenders hereunder and/or by
having any one or more Lenders then holding a Commitment hereunder (at their
respective election in their sole discretion) that have been approved by
Borrower and Agent (which consents will not be unreasonably withheld) increase
the amount of their Commitments (any such Lender that elects to increase its
Commitment and any New Lender being hereinafter referred to as an "Additional
Lender"), provided that (A) unless otherwise agreed by Borrower and Agent, the
Commitment of any New Lender shall not be less than $10,000,000 and (B) unless
otherwise agreed by Borrower and Agent, the increase in the Commitment of any
Lender shall be not less than $5,000,000; (C) the Aggregate Commitment shall not
exceed $400,000,000; (D) Borrower and each Additional Lender shall have executed
and delivered a commitment and acceptance (the "Commitment and Acceptance")
substantially in the form of Exhibit D hereto and Agent shall have accepted and
executed the same (which acceptance shall not be unreasonably withheld); (E)
Borrower shall have executed and delivered to Agent a Note or Notes payable to
the order of each Additional Lender, each such Note to be in the amount of such
Additional Lender's Commitment or increased Commitment (as applicable); (F)
Borrower shall have delivered to Agent an opinion of counsel (substantially
similar to the form of opinion attached hereto as Exhibit E, modified to apply
to the increase in the Aggregate Commitment and each Note and Commitment and
Acceptance executed and delivered in connection therewith); (G) the Guarantors
shall have delivered to Agent a written instrument confirming their consent to
the new Commitments or increases in Commitments (as applicable) and that their
Guaranty Agreements continue in full force and effect; (H) Borrower and each
Additional Lender shall otherwise have executed and delivered such other
instruments and documents as Agent shall have reasonably requested in connection
with such new Commitment or increase in a Commitment (as applicable); (I)
Borrower shall pay (i) to the Agent for the account of the Additional Lenders an
upfront fee related to the increased Commitments and (ii) to the Agent or its
affiliate an arrangement fee related to the Facility Increase Request, and such
fees shall be in an amount to be determined by Borrower and Agent, and payable
on the Increase Date; and (J) no Default or Event of Default shall exist on the
Increase Date after giving effect to the increase in the Aggregate Commitment.
The form and substance of the documents required under clauses (D) through (H)
above shall be fully acceptable to Agent in its reasonable discretion. Agent
shall provide written notice to


                                       29



Lenders following any such increase in the Aggregate Commitment hereunder and
shall furnish to Lenders, upon request, copies of the Commitment and Acceptance.

               (ii) On the effective date of any increase in the Aggregate
Commitment pursuant to the provisions hereof ("Increase Date"), which Increase
Date shall be mutually agreed upon by Borrower, each Additional Lender and
Agent, each Additional Lender shall make a payment to Agent in an amount
sufficient, upon the application of such payments by all Additional Lenders to
the reduction of the outstanding ABR Loans (other than Swingline Loans) held by
Lenders, to cause the principal amount outstanding under such ABR Loans made by
all Lenders (including any Additional Lender) to be in the proportion of their
respective Commitments (as of such Increase Date). Borrower hereby irrevocably
authorizes each Additional Lender to fund to Agent the payment required to be
made pursuant to the immediately preceding sentence for application to the
reduction of the outstanding ABR Loans held by each Lender, and each such
payment shall constitute a ABR Loan hereunder. Such Additional Lender shall not
participate in any LIBOR Rate Loans that are outstanding on the Increase Date,
but, if Borrower shall, at any time on or after such Increase Date, convert or
continue any LIBOR Rate Loans outstanding on such Increase Date, Borrower shall
be deemed to repay such LIBOR Rate Loans on the date of the conversion or
continuation thereof and then to reborrow as a LIBOR Rate Loan a like amount on
such date (regardless of whether the conditions precedent to borrowing have been
satisfied) so that each Additional Lender shall make a LIBOR Rate Loan on such
date in its Ratable Share of such LIBOR Rate Loans. Each Additional Lender shall
also advance its Ratable Share of all Revolving Credit Loans made on or after
such Increase Date and shall otherwise have all of the rights and obligations of
a Lender hereunder on and after such Increase Date. Notwithstanding the
foregoing, upon the occurrence of an Event of Default prior to the date on which
an Additional Lender is holding Revolving Credit Loans equal to its Ratable
Share of all Revolving Credit Loans hereunder, such Additional Lender shall,
upon notice from Agent, on or after the date on which the Obligations are
accelerated or become due following such Event of Default, pay to Agent (for the
account of the other Lenders, to which the Agent shall pay their pro rata shares
upon receipt) a sum equal to such Additional Lender's Ratable Share of each
Revolving Credit Loan then outstanding with respect to which such Additional
Lender does not then hold its Ratable Share thereof.

               (iii) On the Increase Date and the making of the Loans by an
Additional Lender in accordance with the provisions of the first sentence of
Section 2.6(b)(ii) hereof, such Additional Lender shall also be deemed to have
irrevocably and unconditionally purchased and received, without recourse or
warranty, from Lenders party to this Agreement immediately prior to the Increase
Date, an undivided interest and participation in any Facility L/C then
outstanding, ratably, such that all Lenders (including each Additional Lender)
hold participation interests in each such Facility L/C in the proportion of
their respective Commitments (taking into account the increase in the Aggregate
Commitment that is effective on such Increase Date).

               (iv) Nothing contained herein shall constitute, or otherwise be
deemed to be, a commitment or agreement on the part of any Lender to increase
its Commitment hereunder at any time or a commitment or agreement on the part of
Borrower or Agent to give or grant any Lender the right to increase its
Commitment hereunder at any time.


                                       30



          2.7 Maturity Date of Commitment; Extension.

               (a) Unless earlier terminated pursuant to the terms of this
Agreement, the Aggregate Commitment shall terminate on the Maturity Date, and
the unpaid balance of the Revolving Credit Loans and Swingline Loans and all
other unpaid Obligations outstanding shall be paid on the Maturity Date

               (b) Not more than once in any fiscal year of Borrower, Borrower
may request an extension of the Maturity Date to the first anniversary of the
then scheduled Maturity Date by submitting a request for an extension (the
"Extension Request") to Agent not less than 180 days prior to the then scheduled
Maturity Date. Promptly upon (but not later than five (5) Business Days after)
Agent's receipt and approval of the Extension Request, Agent shall deliver to
each Lender a copy of, and shall request each Lender to approve, the Extension
Request. Each Lender approving the Extension Request shall deliver its written
approval no later than 60 days after such Lender's receipt of the Extension
Request. If the written approval of the Extension Request by Lenders whose
Ratable Shares equal or exceed 66-2/3% in the aggregate is received by the Agent
within such 60-day period and provided no Default or Event of Default exists on
the effective date of such extension, the Maturity Date shall be extended as
specified in the Extension Request but only with respect to Lenders that have
given their written approval. Borrower shall pay to the Lenders approving the
extension an extension fee in an amount to be determined by Borrower and Agent,
payable on the effective date of such extension. Except to the extent that a
Lender that did not give its written approval to such Extension Request
("Rejecting Lender") is replaced as provided in Section 3.10 hereof, the Loans
and all interest thereon, fees and other Obligations owed to such Rejecting
Lender shall be paid in full on the Maturity Date as determined prior to such
Extension Request (the "Rejecting Lender's Facility Termination Date").

               (c) If Lenders whose Ratable Shares equal or exceed 66-2/3% in
the aggregate approve the Extension Request, Borrower, upon notice to Agent and
any Rejecting Lender, may, subject to the provisions of the next to the last
sentence of Section 2.7(d) hereof, terminate the Commitment of such Rejecting
Lender (or such portion of such Commitment that is not assigned to a Replacement
Lender in accordance with Section 3.10 hereof), which termination shall occur as
of a date set forth in Borrower's notice but in no event more than thirty (30)
days following such notice. The termination of a Lender's Commitment shall be
effected in accordance with Section 2.7 (d) hereof.

               (d) If Borrower elects to terminate a Commitment of a Rejecting
Lender as provided in Section 2.7(c), Borrower shall pay to the Rejecting Lender
on the effective date of such termination all Obligations due and owing to it
hereunder or under any other Loan Document, including, without limitation, the
aggregate outstanding principal amount of the Loans owed to such Rejecting
Lender, together with accrued interest thereon through the date of such
termination, amounts payable under Sections 2.9 and 3.5 hereof and the Unused
Fee and Facility LC Fee payable to such Rejecting Lender. Upon request by
Borrower or Agent, the Rejecting Lender will deliver to Borrower and Agent a
letter setting forth the amounts payable to such Rejecting Lender as set forth
above. Upon the termination of such Rejecting Lender's Commitment and payment of
the amounts provided for in the immediately preceding sentence, Borrower shall
have no further obligations to such Rejecting Lender under this Agreement and


                                       31



such Rejecting Lender shall cease to be a Lender, provided, however, that such
Rejecting Lender shall continue to be entitled to the benefits of Sections 2.9,
3.5, 3.6 and 11.6 hereof, as well as to any fees accrued for its account
hereunder not yet paid, and shall continue to be obligated under Section 11.6(c)
hereof with respect to obligations and liabilities accruing prior to the
termination of such Rejecting Lender's Commitment. If, as a result of the
termination of the Rejecting Lender's Commitment, any payment of a LIBOR Rate
Loan occurs on a day which is not the last day of the applicable Interest
Period, Borrower shall pay to Agent for the benefit of Lenders (including any
Rejecting Lender) any loss or cost incurred by Lenders (including any Rejecting
Lender) resulting therefrom in accordance with Section 3.5 hereof. Upon the
effective date of the termination of the Rejecting Lender's Commitment, the
Aggregate Commitment shall be reduced by the amount of the terminated Commitment
of the Rejecting Lender, and each other Lender shall be deemed to have
irrevocably and unconditionally purchased and received (subject to the
provisions of the next to the last sentence of this Section 2.7(d)), without
recourse or warranty, from the Rejecting Lender, an undivided interest and
participation in any Facility L/C then outstanding, ratably, such that each
Lender (excluding the Rejecting Lender but including any replacement Lender that
acquires an interest hereunder from such Rejecting Lender) holds a participation
interest in each Facility L/C in proportion to the ratio that such Lender's
Commitment (upon the effective date of such termination of the Rejecting
Lender's Commitment) bears to the Aggregate Commitment (as reduced by the
termination of such Rejecting Lender's Commitment or a part thereof).
Notwithstanding the foregoing, if, upon the termination of the Commitment of
such Rejecting Lender, the sum of the outstanding principal balance of the Loans
and the Facility L/C Obligations would exceed the Aggregate Commitment (as
reduced), Borrower may not terminate such Rejecting Lender's Commitment unless
Borrower, on or prior to the effective date of such termination, prepays, in
accordance with the provisions of this Agreement, outstanding Loans or causes to
be canceled, released and returned to the applicable LC Issuer outstanding
Facility L/Cs or deposits cash into the Facility L/C Collateral Account in
sufficient amounts in the aggregate such that, on the effective date of such
termination, the Aggregate Outstanding Credit Exposure does not exceed the sum
of the Aggregate Commitment (as reduced) and the amounts held in the Facility
L/C Collateral Account. In the event that Borrower makes such deposit into the
Facility L/C Collateral Account, such deposits shall be applied by Agent to pay
to the applicable LC Issuer amounts drawn on any Facility L/C that are not
reimbursed by Borrower and, provided no Default or Event of Default has occurred
that is continuing, shall be returned to Borrower when the Aggregate Outstanding
Credit Exposure equals or is less than the Aggregate Commitment.

          2.8 Computation of Interest and Fees. Unused Fees and interest in
respect of the Loans shall be calculated on the basis of a 360-day year for the
actual days elapsed; provided, however, that interest calculated based on the
rate set forth in the second proviso of the definition of "Alternative Base
Rate" shall be calculated on the basis of a 365/366-day year for the actual days
elapsed. Any change in the interest rate on the Loans and the Notes resulting
from a change in the Alternate Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business of the day on
which such change in the Alternate Base Rate or the Eurocurrency Reserve
Requirements shall become effective, without notice to Lenders or Borrower.
However, Agent shall give Borrower and Lenders prompt notice of all changes in
the Alternate Base Rate or the Eurocurrency Reserve Requirements. Each
determination of an interest rate by Agent pursuant to any provision of this
Agreement shall be conclusive and binding on Lenders and Borrower in the absence
of manifest error.


                                       32



          2.9 Increased Costs. (a) If any Change in Law shall:

               (i) impose, modify or deem applicable any reserve, special
deposit, compulsory loan, insurance charge or similar requirement against assets
of, deposits with or for the account of, or credit extended or participated in
by, any Lender (except the Eurocurrency Reserve Requirements) or LC Issuer;

               (ii) subject any Lender or LC Issuer to any tax of any kind
whatsoever with respect to this Agreement, any Facility L/C, any participation
in a Facility L/C or any LIBOR Rate Loan made by it, or change the basis of
taxation of payments to such Lender or LC Issuer in respect thereof (except for
Indemnified Taxes or Other Taxes covered by Section 3.6 hereof and the
imposition of, or any change in the rate of, any Excluded Tax payable by such
Lender or LC Issuer); or

               (iii) impose on any Lender or LC Issuer or the London interbank
market any other condition, cost or expense affecting this Agreement or LIBOR
Rate Loans made by such Lender or any Facility L/C or participation therein
(except the Eurocurrency Reserve Requirement);

and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any LIBOR Rate Loan (or of maintaining its
obligation to make any such Loan), or to increase the cost to such Lender or LC
Issuer of participating in, issuing or maintaining any Facility L/C (or of
maintaining its obligation to participate in or to issue any Facility L/C), or
to reduce the amount of any sum received or receivable by such Lender or LC
Issuer hereunder (whether of principal, interest or any other amount) then, upon
request of such Lender or the LC Issuer, Borrower will pay to such Lender or the
LC Issuer, as the case may be, such additional amount or amounts as will
compensate such Lender or the LC Issuer, as the case may be, for such additional
costs incurred or reduction suffered.

               (b) If any Lender or LC Issuer determines that any Change in Law
affecting such Lender or LC Issuer or any Lending Office of such Lender or such
Lender's or LC Issuer's holding company, if any, regarding capital requirements
has or would have the effect of reducing the rate of return on such Lender's or
LC Issuer's capital or on the capital of such Lender's or LC Issuer's holding
company, if any, as a consequence of this Agreement, the Commitment of such
Lender or the Loans made by, or participations in Facility L/Cs held by, such
Lender, or the Facility L/Cs issued by such LC Issuer, to a level below that
which such Lender or LC Issuer or such Lender's or such LC Issuer's holding
company could have achieved but for such Change in Law (taking into
consideration such Lender's or LC Issuer's policies and the policies of such
Lender's or LC Issuer's holding company with respect to capital adequacy), then
from time to time Borrower will pay to such Lender or LC Issuer, as the case may
be, such additional amount or amounts as will compensate such Lender or LC
Issuer or such Lender's or the LC Issuer's holding company for any such
reduction suffered.

               (c) A certificate of a Lender or LC Issuer setting forth the
amount or amounts necessary to compensate such Lender or LC Issuer or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section and delivered to Borrower shall be


                                       33



conclusive absent manifest error. Borrower shall pay such Lender or LC Issuer,
as the case may be, the amount shown as due on any such certificate within ten
(10) days after receipt thereof.

               (d) Failure or delay on the part of any Lender or LC Issuer to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the LC Issuer's right to demand such compensation, provided
that Borrower shall not be required to compensate a Lender or LC Issuer pursuant
to this Section for any increased costs incurred or reductions suffered more
than nine (9) months prior to the date that such Lender or the LC Issuer, as the
case may be, notifies Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or LC Issuer's intention to
claim compensation therefor (except that, if the Change in Law giving rise to
such increased costs or reductions is retroactive, then the nine (9) month
period referred to above shall be extended to include the period of retroactive
effect thereof).

          2.10 Use of Proceeds. The proceeds of the Loans made hereunder shall
be used by Borrower to finance the acquisition and development of land and lots
and the construction of residential homes and construction projects within the
continental United States.

          2.11 Payments; Pro Rata Treatment.

               (a) Each borrowing by Borrower from Lenders hereunder (other than
a Swingline Loan), each payment (including each prepayment (other than a
prepayment pursuant to Section 2.7(d))) by Borrower on account of principal of
and interest on the Revolving Credit Loans, each payment by Borrower on account
of any Unused Fee hereunder and any reduction of the Commitments (in each case,
other than pursuant to Section 2.7(d)) shall be made pro rata according to the
respective Lenders' Ratable Shares. All payments (including prepayments) to be
made by Borrower hereunder and under the Notes, whether on account of principal,
interest, fees or otherwise, shall be made without set-off or counterclaim and
shall be made prior to 11:00 a.m., Charlotte, North Carolina time, on the due
date thereof to Agent, for the account of Lenders, at Agent's office at 301
South College Street, Charlotte, North Carolina, or at such other office as
directed by Agent from time to time, in Dollars and in immediately available
funds. Agent shall promptly distribute such payments to Lenders upon receipt in
like funds as received. If any payment hereunder on an ABR Loan becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension. If any payment hereunder on a LIBOR Rate Loan becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day (and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension)
unless the result of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the immediately
preceding Business Day.

               (b) Borrower may from time to time pay, without penalty or
premium, all outstanding ABR Loans, or, in a minimum aggregate amount of
$250,000 or any integral multiple of $500,000 in excess thereof, any portion of
the outstanding ABR Loans upon notice to Agent not later than 11:00 a.m.
Charlotte, North Carolina time on the date of payment. Borrower may from time to
time pay, subject to the payment of any indemnification amounts required by


                                       34



Section 3.5 but without penalty or premium, all outstanding LIBOR Rate Loans,
or, in a minimum aggregate amount of $5,000,000 or any integral multiple of
$1,000,000 in excess thereof, any portion of the outstanding LIBOR Rate Loans
upon notice to Agent not later than 10:00 a.m. Charlotte, North Carolina time on
the date of payment; provided, that, notwithstanding the foregoing, other than
any prepayment of Revolving Credit Loans made by Borrower in order to comply
with Section 6.4 hereof, no more than two prepayments of Revolving Credit Loans
may be made each calendar month.

          2.12 Swingline Loans.

               (a) Subject to the terms and conditions of this Agreement,
Swingline Lender agrees to make at any time and from time to time after the
initial Borrowing Date and prior to the Swingline Expiry Date swingline loans to
Borrower ("Swingline Loans"), which Swingline Loans (i) shall be made and
maintained as ABR Loans, (ii) shall be denominated in Dollars, (iii) may be
repaid and reborrowed in accordance with the provisions hereof, (iv) shall not
exceed, in aggregate principal amount at any one time outstanding, the lesser of
(A) the Maximum Swingline Amount and (B) the amount by which Swingline Lender's
Commitment exceeds its share of the sum of all Revolving Credit Loans and
Facility L/C Obligations and (v) shall be subject to the limitations set forth
in Section 2.1(b) hereof; provided, however, that after giving effect to any
Swingline Loan, (A) the Aggregate Outstanding Credit Exposure shall not exceed
the Aggregate Commitment and (B) the aggregate outstanding amount of the
Revolving Credit Loans of any Lender plus such Lender's Ratable Share of the
Facility L/C Obligations and outstanding Swingline Loans shall not exceed such
Lender's Commitment. Swingline Lender will not make a Swingline Loan after it
has received written notice from Borrower or the Required Lenders stating that a
Default or an Event of Default exists until such time as Swingline Lender shall
have received a written notice of (i) rescission of such notice from the party
or parties originally delivering the same or (ii) a waiver of such Default or
Event of Default, as required by this Agreement.

               (b) Borrower shall give Swingline Lender irrevocable telephonic
or written notice prior to 11:00 a.m., Charlotte, North Carolina time on the
requested Borrowing Date specifying the amount of the requested Swingline Loan
which shall be in a minimum amount of $500,000 or whole multiples of $100,000 in
excess thereof. The Swingline Loans will then be made available to Borrower by
Swingline Lender by crediting the account of Borrower on the books of Swingline
Lender.

               (c) The Swingline Loans shall be evidenced by the Note held by
Swingline Lender. Swingline Lender is hereby authorized to record electronically
or otherwise the date and amount of each Swingline Loan, and the date and amount
of each payment or prepayment of principal thereof, and any such recordation
shall constitute conclusive evidence of the accuracy of the information so
recorded absent manifest error, provided, however, the failure of Swingline
Lender to make, or any error in making, any such recordation(s) shall not affect
the obligation of Borrower to repay outstanding principal, interest, or any
other amount due hereunder in accordance with the terms hereof and thereof. The
Swingline Loan shall (i) mature on the Swingline Expiry Date, and (ii) bear
interest for the period from and including the date thereof on the unpaid
principal amount thereof from time to time outstanding at the applicable


                                       35



interest rate per annum determined as provided in Section 2.5 hereof. Interest
on each Swingline Loan shall be payable as specified in Section 2.5 hereof.

               (d) Swingline Lender, at any time and in its sole and absolute
discretion, may (and, not later than four (4) Business Days after the making of
a Swing Line Loan, shall), on behalf of Borrower (which hereby irrevocably
directs Swingline Lender to act on Borrower's behalf), request each Lender,
including Swingline Lender, to make a Revolving Credit Loan (each, a "Mandatory
Borrowing") in an amount equal to such Lender's Ratable Share of the amount of
the Swingline Loans (provided that each such request shall be deemed to have
been automatically given upon the occurrence of a Default or an Event of Default
under Article 9 hereof or upon the exercise of any of the remedies provided in
the last paragraph of Article 9 hereof), in which case each Lender shall make
the proceeds of its Revolving Credit Loan available to Swingline Lender on the
immediately succeeding Business Day in its Ratable Share thereof, and the
proceeds thereof shall be applied directly to repay Swingline Lender for such
outstanding Swingline Loans. Each Lender hereby irrevocably agrees to make ABR
Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the
amount and in the manner specified in the preceding sentence and on the date
specified by Swingline Lender notwithstanding (i) that the amount of the
Mandatory Borrowing may not comply with the minimum borrowing amount otherwise
required hereunder, (ii) whether any conditions specified in Article 5 hereof
are then satisfied, (iii) whether a Default or an Event of Default has occurred
and is continuing, (iv) the date of such Mandatory Borrowing, (v) any reduction
in the Commitments after any such Swingline Loans were made, (vi) Borrower's
compliance with Borrowing Base requirements, (vii) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against Swingline
Lender, Borrower or any other Person for any reason whatsoever, or (viii) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing. In the event that any Mandatory Borrowing cannot for any
reason be made on the date otherwise required above (including, without
limitation, as a result of the commencement of a proceeding under the Bankruptcy
Code in respect of Borrower), each Lender (other than Swingline Lender) hereby
agrees that it shall forthwith purchase from Swingline Lender (without recourse
or warranty) a participation interest in such outstanding Swingline Loans as
shall be necessary to cause the Lenders to hold participation interests in such
Swingline Loans in the proportion of their respective Ratable Shares thereof,
provided that all interest payable on the Swingline Loans shall be for the
account of Swingline Lender until the date the Mandatory Borrowing is made, and,
to the extent attributable to the Mandatory Borrowing, shall be payable to the
Lender making such Mandatory Borrowing from and after the date such Mandatory
Borrowing is made.

               (e) Whenever, at any time after Swingline Lender has received
from any Lender such Lender's assigned interest in a Swingline Loan and
Swingline Lender receives any payment on account thereof, Swingline Lender will
distribute to such Lender its assigned interest in such amount (appropriately
adjusted, in the case of interest payments, to reflect the period of time during
which such Lender's assigned interest was outstanding and funded); provided,
however, that in the event that such payment received by Swingline Lender is
required to be returned, such Lender will return to Swingline Lender any portion
thereof previously distributed by Swingline Lender to it.


                                       36



          2.13 The Facility L/Cs. So long as no Default or Event of Default
exists, Wachovia Bank and each other Lender that is designated as an LC Issuer
in accordance with Section 2.14(a) hereof, agree to issue Facility L/Cs, on the
terms and conditions hereof, provided that (a) the aggregate of all Facility L/C
Obligations at any one time outstanding shall not exceed Fifty Million Dollars
($50,000,000), (b) the sum of the aggregate amount of all Loans and the
aggregate amount of all Facility L/C Obligations at any one time outstanding
shall not exceed the Aggregate Commitment and (c) the issuance of Facility L/Cs
is subject to the limitation set forth in Section 2.1(b) hereof. Each letter of
credit issued by Wachovia Bank under the terms of the Existing Credit Agreement
shall be treated as a Facility L/C issued hereunder.

          2.14 Designation or Resignation of LC Issuer.

               (a) Upon request by Borrower and approval by Agent, a Lender may
at any time agree to be designated as an LC Issuer hereunder, which designation
shall be set forth in a written instrument or instruments delivered by Borrower,
Agent and such Lender. Agent shall promptly notify the other Lenders of such
designation. From and after such designation and unless and until such Lender
resigns as an LC Issuer in accordance with Section 2.14(b) below, such Lender
shall have all of the rights and obligations of an LC Issuer hereunder.

               (b) An LC Issuer shall continue to be an LC Issuer unless and
until (i) it shall have given Borrower and Agent notice that it has elected to
resign as LC Issuer and (ii) at the time of such notice, there shall be at least
one other LC Issuer or another Lender shall have agreed to be the replacement LC
Issuer and shall have been approved in writing by Agent and Borrower. A
resigning LC Issuer shall continue to have the rights and obligations of the LC
Issuer hereunder solely with respect to Facility L/Cs theretofore issued by it,
notwithstanding the designation of a replacement LC Issuer hereunder, but upon
its notice of resignation (or, if at the time of such notice, there is not at
least one other LC Issuer, then upon such designation of a replacement LC
Issuer), the resigning LC Issuer shall not thereafter issue any Facility L/C
(unless it shall again thereafter be designated as an LC Issuer in accordance
with the provisions of this Section 2.14). The assignment of, or grant of a
participation interest in, all or any part of its Commitment or Loans by a
Lender that is also an LC Issuer shall not constitute an assignment or transfer
of any of its rights or obligations as an LC Issuer.

          2.15 Issuance of Facility L/Cs.

               (a) Borrower may request an LC Issuer to issue a Facility L/C by
delivering to such LC Issuer (with a copy to Agent if Agent is not such LC
Issuer), no later than 11:00 a.m. (local time at such LC Issuer's office
designated herein) two (2) Business Days prior to the date on which issuance of
the Facility L/C is requested by Borrower, a standby letter of credit
application and reimbursement agreement in such LC Issuer's then customary form
(the "Facility L/C Application") completed to the satisfaction of such LC
Issuer, together with the proposed form of such letter of credit (which shall
comply with the applicable requirements of Section 2.15(b) below) and such other
certificates, documents and other papers and information as such LC Issuer may
reasonably request.

               (b) Each Facility L/C issued hereunder shall, among other things,
(i) be in such form requested by Borrower as shall be acceptable to the LC
Issuer thereof in its sole


                                       37



discretion, and (ii) have an expiry date (taking into account any automatic
renewal provisions thereof) occurring prior to the Maturity Date. If the
Aggregate Commitment is terminated (whether by acceleration, demand, or
otherwise), then, not later than simultaneously with such termination, all
outstanding Facility L/Cs shall be returned to the LC Issuer thereof or Borrower
shall cash collateralize all outstanding Facility L/Cs in accordance with
Article 8 hereof. Each Facility L/C Application and each Facility L/C shall be
subject to the Uniform Customs and, to the extent not inconsistent therewith,
the laws of the state in which is located the LC Issuer's office from which such
Facility L/C is issued.

               (c) An LC Issuer shall not issue, amend or extend, at any time,
any Facility L/C:

                    (i) if the aggregate maximum amount then available for
          drawing under Letters of Credit issued by such LC Issuer, after giving
          effect to the Facility L/C or amendment or extension thereof requested
          hereunder, shall exceed any limit imposed by law or regulation upon
          such LC Issuer;

                    (ii) if, after giving effect to the issuance, amendment or
          extension of the Facility L/C requested hereunder, the aggregate
          principal amount of the Facility L/C Obligations would exceed Fifty
          Million Dollars ($50,000,000);

                    (iii) if, after giving effect to the issuance, amendment or
          extension of the Facility L/C requested hereunder, Borrowing Base
          Indebtedness would exceed the Borrowing Base as of the most recent
          Inventory Valuation Date;

                    (iv) if, after giving effect to the issuance, amendment or
          extension of the Facility L/C requested hereunder, the sum of (A) the
          outstanding and unpaid principal amount of the Loans and (B) the
          Facility L/C Obligations would exceed the Aggregate Commitment;

                    (v) if such LC Issuer receives written notice from the Agent
          at or before 11:00 a.m. Charlotte, North Carolina time on the proposed
          date of issuance, amendment or extension of such Facility L/C that one
          or more of the conditions precedent contained in Section 2.15(d) below
          would not on such date be satisfied, unless such conditions are
          thereafter satisfied or waived and written notice of such satisfaction
          is given to such LC Issuer by Agent; or

                    (vi) that is in a currency other than Dollars.

               (d) The issuance, amendment or extension of any Facility L/C is
subject to the satisfaction in full of the following conditions on the date of
such issuance, amendment or extension:

                    (i) the conditions of Sections 5.1 and 5.2 hereof are
          satisfied; and


                                       38



                    (ii) no order, judgment or decree of any court, arbitrator
          or governmental authority shall enjoin or restrain the LC Issuer
          thereof from issuing the Facility L/C and no law, rule or regulation
          applicable to such LC Issuer and no directive from any governmental
          authority with jurisdiction over such LC Issuer shall prohibit such LC
          Issuer from issuing Letters of Credit generally or from issuing that
          Facility L/C.

               (e) Upon receipt of any Facility L/C Application from Borrower,
the LC Issuer will process such Facility L/C Application, and the other
certificates, documents and other papers delivered to such LC Issuer in
connection therewith, in accordance with its customary procedures and, upon
satisfaction of all conditions contained in this Agreement, shall promptly issue
the original of such Facility L/C and deliver it to the beneficiary thereof, or
to Borrower which shall deliver such original Facility L/C to the beneficiary,
and furnish a copy thereof to Borrower. The LC Issuer shall give Agent written
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of a Facility L/C.

               (f) No LC Issuer shall extend or amend any Facility L/C unless
the requirements of this Section 2.15 are met as though a new Facility L/C were
being requested and issued.

          2.16 Facility L/C Participations.

               (a) Each LC Issuer irrevocably agrees to grant and hereby grants
to each Lender, and, to induce the LC Issuers to issue Facility L/Cs hereunder,
each Lender irrevocably agrees to accept and purchase and hereby accepts and
purchases from the applicable LC Issuer, on the terms and conditions hereinafter
stated, for such Lender's own account and risk, an undivided interest equal to
such Lender's Ratable Share in such LC Issuer's obligations and rights under
each Facility L/C and the amount of each draft paid by such LC Issuer.

               (b) Upon receipt from the beneficiary of any Facility L/C of any
demand for payment under such Facility L/C, the LC Issuer shall notify Agent and
Agent shall promptly notify Borrower and each other Lender as to the amount to
be paid by such LC Issuer as a result of such demand and the proposed payment
date. The responsibility of such LC Issuer to Borrower and each Lender shall be
only to determine that the documents (including each demand for payment)
delivered under each Facility L/C in connection with such presentment shall be
in conformity in all material respects with such Facility L/C. Each LC Issuer
shall exercise the same care in the issuance and administration of the Facility
L/Cs issued by it as it does with respect to Letters of Credit in which no
participations are granted, it being understood that, in the absence of any
gross negligence or willful misconduct by such LC Issuer, each Lender shall be
unconditionally and irrevocably liable without regard to the occurrence of any
Default or Event of Default or any condition precedent whatsoever, to reimburse
such LC Issuer on demand for such Lender's Ratable Share of the amount of each
payment made by such LC Issuer on each Facility L/C issued by it to the extent
such amount is not reimbursed by Borrower pursuant to Section 2.17 hereof, plus
interest thereon to the extent provided in Section 2.16(c) below.

               (c) If any amount required to be paid by any Lender to an LC
Issuer in respect of any unreimbursed portion of any payment made by such LC
Issuer under any Facility


                                       39



L/C is not paid to such LC Issuer on the date such payment is due but is paid
within three (3) Business Days after such payment is due, such Lender shall pay
to such LC Issuer on demand an amount equal to the product of (i) such amount,
multiplied by (ii) the daily average Federal Funds Rate during the period from
and including the date such payment is required to the date on which such
payment is immediately available to such LC Issuer, multiplied by (iii) a
fraction the numerator of which is the number of days that elapse during such
period and the denominator of which is 360. If any such amount required to be
paid by any Lender pursuant to this Section 2.16 is not paid to such LC Issuer
by such Lender within three (3) Business Days after the date such payment is
due, such LC Issuer shall be entitled to recover from such Lender, on demand,
such amount with interest thereon calculated from the fourth Business Day after
such due date until paid in full at the rate per annum applicable to Revolving
Credit Loans made as ABR Loans hereunder. A certificate of such LC Issuer
submitted to any Lender with respect to any amounts owing under this Section
2.16 shall be conclusive in the absence of manifest error.

               (d) Whenever, at any time after any LC Issuer has made payment
under any Facility L/C issued by it and has received from any Lender its Ratable
Share of such payment, such LC Issuer receives any payment related to such
Facility L/C (whether directly from Borrower or otherwise, including proceeds of
collateral applied thereto by such LC Issuer), or any payment of interest on
account thereof, such LC Issuer will distribute to such Lender its Ratable Share
thereof; provided, however, that in the event that any such payment received by
such LC Issuer shall be required to be returned by such LC Issuer, such Lender
shall return to such LC Issuer the portion thereof previously distributed by
such LC Issuer to it.

          2.17 Payments. Borrower agrees (a) to reimburse each LC Issuer, for
the pro rata benefit of the Lenders in accordance with each Lender's respective
Ratable Share, forthwith upon its or Agent's demand and otherwise in accordance
with the terms of the L/C Application relating thereto, for any expenditure or
payment made by such LC Issuer under any Facility L/C, and (b) to pay interest
on any unreimbursed portion of any such payments from the date of such payment
until reimbursement in full thereof at a rate per annum equal to (i) prior to
the date which is (A) one (1) Business Day after the day on which such LC Issuer
demands reimbursement from Borrower for such payment if such demand is made
prior to 11:00 a.m., Charlotte, North Carolina time or (B) two (2) Business Days
after the day on which such LC Issuer or Agent demands reimbursement if such
demand is made at or after 11:00 a.m. Charlotte, North Carolina time, the rate
which would then be payable on any outstanding ABR Loan which is not in default,
and (ii) thereafter, the rate which would then be payable on any outstanding ABR
Loan which is in default.

          2.18 Facility L/C Fee. In lieu of any letter of credit commissions and
fees provided for in any Facility L/C Application (other than standard issuance,
amendment, negotiation and administration fees and expenses), Borrower agrees to
pay Agent, in the case of each Facility L/C, for the account of the Lenders and
the LC Issuer thereof (as hereinafter provided), the Facility L/C Fee therefor,
on the average daily undrawn stated amount under such Facility L/C. The Facility
L/C Fees shall be due and payable quarterly in arrears not later than the day
("Quarterly Payment Date") that is five (5) Business Days following Agent's
delivery to Borrower of the quarterly statement of Facility L/C Fees and, to the
extent any such fees are then accrued and unpaid, on the last day of the
Commitment Period. Facility L/C Fees shall be calculated, for the period to
which such payment applies, for actual days on which such Facility


                                       40



L/C was outstanding during such period, on the basis of a 360-day year. Agent
shall promptly remit such Facility L/C Fees, when paid, as follows: (i) to each
LC Issuer, solely for its own account, with respect to each Facility L/C issued
by such LC Issuer, an amount per annum equal to the product of (A) 0.125% per
annum and (B) the face amount of such Facility L/C and (ii) to all Lenders,
their Ratable Shares of the balance of such Facility L/C Fees. In addition, an
LC Issuer may charge and retain for its own account, and Borrower agrees to pay,
such LC Issuer's usual and customary charges with respect to the issuance,
amendment, negotiation and administration of the Facility L/C.

          2.19 Further Assurances. Borrower hereby agrees to do and perform any
and all acts and to execute any and all further instruments reasonably requested
by Agent or an LC Issuer more fully to effect the purposes of this Agreement and
the issuance of Facility L/Cs hereunder.

          2.20 Obligations Absolute.

               (a) The obligations of the other Lenders to an LC Issuer with
respect to Facility L/Cs issued by such LC Issuer, and the Reimbursement
Obligations of Borrower with respect to Facility L/Cs, under this Agreement
shall be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances, including without
limitation the following:

                    (i) the existence of any claim, set-off, defense or other
     right which Borrower may have at any time against any beneficiary, or any
     transferee, of any Facility L/C (or any Persons for whom any such
     beneficiary or any such transferee may be acting), any LC Issuer or any
     other Person, whether in connection with this Agreement, the transaction
     contemplated herein, or any unrelated transaction (including any underlying
     transaction between Borrower or any Subsidiary and the beneficiary of such
     Facility L/C);

                    (ii) any draft, certificate, statement or any other document
     presented under any Facility L/C proving to be forged, fraudulent, invalid
     or insufficient in any respect or any statement therein being untrue or
     inaccurate in any respect;

                    (iii) payment by an LC Issuer under any Facility L/C against
     presentation of a draft or certificate which does not comply with the terms
     of such Facility L/C, provided that such LC Issuer has made such payment to
     the beneficiary set forth on the face of such Facility L/C;

                    (iv) the occurrence or any Default or Event of Default; or

                    (v) any other circumstances or happening whatsoever, whether
     or not similar to any of the foregoing.

               (b) Each LC Issuer shall be entitled to rely, and shall be fully
protected in relying, upon any Facility L/C, draft, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document believed by it to be
genuine and correct and to have been signed, sent or made by the


                                       41



proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by such LC Issuer. Each LC
Issuer shall be fully justified in failing or refusing to take any action under
this Agreement unless it shall first have received such advice or concurrence of
the Required Lenders as it reasonably deems appropriate or it shall first be
indemnified to its reasonable satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take such action. Notwithstanding any other provision of this
Section 2.20, each LC Issuer shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement in accordance with a request of
the Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Lenders and any future holders of a
participation in any Facility L/Cs.

          2.21 LC Issuer Reporting Requirements. Each LC Issuer shall, no later
than the third (3rd) Business Day following the last day of each month, provide
to Agent a schedule of the Facility L/Cs issued by it showing the issuance date,
account party, original face amount, amount (if any) paid thereunder, expiration
date and the reference number of each Facility L/C outstanding at any time
during such month and the aggregate amount (if any) payable by Borrower to such
LC Issuer during the month pursuant to Section 2.9 hereof. Copies of such
reports shall be provided promptly to each Lender by Agent. Agent shall, with
reasonable promptness following receipt from all LC Issuers of the reports
provided for in this Section 2.21 for the months of March, June, September and
December, respectively, deliver to Borrower a quarterly statement of the
Facility L/C Fees and Unused Fees then due and payable.

          2.22 Indemnification; Nature of LC Issuer's Duties.

               (a) In addition to amounts payable as elsewhere provided in this
Agreement, Borrower hereby agrees to protect, indemnify, pay and save Agent,
each LC Issuer and each Lender harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) arising from the claims of third parties against
Agent, any LC Issuer or any Lender as a consequence, direct or indirect, of (i)
the issuance of any Facility L/C other than, in the case of an LC Issuer, as a
result of its willful misconduct or gross negligence, or (ii) the failure of an
LC Issuer to honor a drawing under a Facility L/C Credit as a result of any act
or omission, whether rightful or wrongful, of any court or other Governmental
Authority.

               (b) As among Borrower, Lenders, Agent and each LC Issuer,
Borrower assumes all risks of the acts and omissions of, or misuse of Facility
L/Cs by, the respective beneficiaries of such Facility L/Cs. In furtherance and
not in limitation of the foregoing, neither an LC Issuer nor Agent nor any
Lender shall be responsible (other than, in the case of an LC Issuer, as a
result of its gross negligence or willful misconduct): (i) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
the Facility L/Cs, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity
or sufficiency of any instrument transferring or assigning or purporting to
transfer or assign a Facility L/C or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason; (iii) for failure of the beneficiary of a Facility
L/C to comply fully with conditions required in order to draw upon such Facility
L/C;


                                       42



(iv) for errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex, facsimile transmission or
otherwise; (v) for errors in interpretation of technical terms; (vi) for any
loss or delay in the transmission or otherwise of any document required in order
to make a drawing under any Facility L/C or of the proceeds thereof; (vii) for
the misapplication by the beneficiary of a Facility L/C of the proceeds of any
drawing under such Facility L/C; or (viii) for any consequences arising from
causes beyond the control of Agent, such LC Issuer and the Lenders including,
without limitation, any act or omission, whether rightful or wrongful, of any
government, court or other governmental agency or authority. None of the above
shall affect, impair, or prevent the vesting of any of such LC Issuer's rights
or powers under this Section 2.22.

               (c) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by an LC
Issuer under or in connection with the Facility L/Cs issued by it or any related
certificates, if taken or omitted in good faith and does not constitute gross
negligence or willful misconduct, shall not put such LC Issuer, Agent or any
Lender under any resulting liability to Borrower or relieve Borrower of any of
its Obligations hereunder to any such Person.

               (d) Notwithstanding anything to the contrary contained in this
Section 2.22, Borrower shall have no obligation to indemnify an LC Issuer under
this Section 2.22 in respect of any liability incurred by an LC Issuer arising
out of the wrongful dishonor by such LC Issuer of a proper demand for payment
made under any Facility L/C issued by such LC Issuer, unless such dishonor was
made at the request of Borrower.

               ARTICLE 3: GENERAL PROVISIONS APPLICABLE TO LOANS

          3.1 Conversion/Continuation Options. Subject to the limitations on the
availability of LIBOR Rate Loans, Borrower may elect from time to time to
convert outstanding Revolving Credit Loans from ABR Loans to LIBOR Rate Loans or
to continue any LIBOR Rate Loan as such upon the expiration of the then current
Interest Period thereof by giving the Agent telephonic or written notice (the
"Notice of Conversion/Continuation"), which Notice of Conversion/Continuation
must be received prior to 11:00 a.m., Charlotte, North Carolina time, at least
three (3) Business Days prior to the requested date for the conversion or
continuation, which notice shall specify (i) the date for the conversion or
continuation (which shall be a Business Day); and (ii) the aggregate amount of
ABR Loans to be converted or LIBOR Rate Loans to be continued. Each conversion
from ABR Loans to LIBOR Rate Loans and each continuation of LIBOR Rate Loans
shall be in the principal amount of $10,000,000 or any larger amount which is an
even multiple of $1,000,000. Agent shall give prompt telephonic or written
notice to each Lender of Borrower's request for conversion or continuation,
specifying (i) the date for the conversion or continuation; (ii) the aggregate
amount of ABR Loans to be converted or LIBOR Rate Loan to be continued; and
(iii) for each such ABR Loan to be converted to a LIBOR Rate Loan and each
continuation of any LIBOR Rate Loan, the respective LIBOR Rate applicable
thereto. All or any part of outstanding ABR Loans may be converted or LIBOR Rate
Loans continued as provided herein, provided that (i) (unless the Required
Lenders otherwise consent) no ABR Loan may be converted into a LIBOR Rate Loan
nor any LIBOR Rate Loan continued as a LIBOR Rate Loan upon the expiration of
the current Interest Period therefor when any Default or Event of Default has
occurred and is continuing and (ii) no ABR Loan may be


                                       43



converted into a LIBOR Rate Loan nor any LIBOR Rate Loan continued as a LIBOR
Rate Loan upon the expiration of the current Interest Period therefor after the
date that is one (1) month prior to the last day of the Commitment Period.

          3.2 Inability to Determine Interest Rate. If prior to the first day of
any Interest Period, the Agent or the Required Lenders shall have reasonably
determined (which determination shall be conclusive and binding upon Borrower)
that, by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the LIBOR Rate for such Interest
Period, the Agent shall give telecopy, telephonic or written notice thereof to
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any LIBOR Rate Loans requested to be made on the first day of such
Interest Period shall be made as ABR Loans and (y) any Loans that were to have
been converted on the first day of such Interest Period to or continued as LIBOR
Rate Loans shall be converted to or continued as ABR Loans. Until such notice
has been withdrawn by the Agent, no further LIBOR Rate Loans shall be made or
continued as such, nor shall Borrower have the right to convert ABR Loans to
LIBOR Rate Loans.

          3.3 Availability of LIBOR Rate Loans. If any Lender reasonably
determines that maintenance of its LIBOR Rate Loans at a Lending Office would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law and such Lending Office is not changed pursuant to
Section 3.4, or if the Required Lenders determine that deposits of a type and
maturity appropriate to match fund LIBOR Rate Loans are not available, then the
Agent shall suspend the availability of LIBOR Rate Loans and require any
affected LIBOR Rate Loans to be repaid or converted to ABR Loans at the end of
the applicable Interest Period

          3.4 Designation of a Different Lending Office. If any Lender requests
compensation under Section 2.9 hereof, or requires Borrower to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 3.6 hereof or determines that maintaining LIBOR
Rate Loans at any particular Lending Office would violate any applicable law,
rule, relation or directive, then such Lender, unless directed by Borrower not
to do so, shall use reasonable efforts to designate a different lending office
for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 2.9 or 3.6 hereof or eliminate the
issues referred to in Section 3.3 above, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. Borrower hereby agrees to pay
all reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment.

          3.5 Indemnity. Borrower agrees to indemnify each Lender and to hold
each Lender harmless from any loss or expense which such Lender sustains or
incurs (other than through such Lender's gross negligence or willful misconduct)
as a consequence of (a) default by Borrower in making a borrowing of, conversion
into or continuation of LIBOR Rate Loans after Borrower has given Agent notice
that Borrower selects such LIBOR Rate Loans in accordance with Section 2.3 or
Section 3.1, as appropriate, of this Agreement, (b) default by Borrower in
making any prepayment or conversion of a LIBOR Rate Loan after Borrower has
given a notice


                                       44



thereof in accordance with the provisions of this Agreement or (c) the making of
a prepayment of LIBOR Rate Loans on a day which is not the last day of an
Interest Period with respect thereto (whether by acceleration, demand, required
assignment or otherwise). Such indemnification may include, without limitation,
an amount equal to the excess, if any, of (i) the amount of interest which would
have accrued on the amount so prepaid, or converted, or not so borrowed,
converted or continued, for the period from the date of such prepayment or
conversion or of such failure to borrow, convert or continue to the last day of
the applicable Interest Period (or, in the case of a failure to borrow, convert
or continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such LIBOR Rate
Loans provided for herein over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank LIBOR market.

          3.6 Taxes.

               (a) Any and all payments by or on account of any obligation of
Borrower hereunder or under any other Loan Document shall be made free and clear
of and without reduction or withholding for any Indemnified Taxes or Other
Taxes, provided that if Borrower shall be required by applicable law to deduct
any Indemnified Taxes (including any Other Taxes) from such payments, then (i)
the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Agent, Lender or LC Issuer, as the case may be, receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) Borrower shall make such deductions and (iii) Borrower shall timely
pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.

               (b) Without limiting the provisions of paragraph (a) above,
Borrower shall timely pay any Other Taxes to the relevant Governmental Authority
in accordance with applicable law.

               (c) Borrower shall indemnify Agent, each Lender and LC Issuer,
within ten (10) days after demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section)
paid by Agent, such Lender or LC Issuer, as the case may be, and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate as to
the amount of such payment or liability delivered to Borrower by a Lender or LC
Issuer (with a copy to Agent), or by Agent on its own behalf or on behalf of a
Lender or LC Issuer, shall be conclusive absent manifest error.

               (d) As soon as practicable after any payment of Indemnified Taxes
or Other Taxes by Borrower to a Governmental Authority, Borrower shall deliver
to Agent the original or a certified copy of a receipt issued by such
Governmental Authority evidencing such payment, a copy of the return reporting
such payment or other evidence of such payment reasonably satisfactory to Agent.


                                       45



               (e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which Borrower
is resident for tax purposes, or any treaty to which such jurisdiction is a
party, with respect to payments hereunder or under any other Loan Document shall
deliver to Borrower (with a copy to Agent), at the time or times prescribed by
applicable law or reasonably requested by Borrower or Agent, such properly
completed and executed documentation prescribed by applicable law as will permit
such payments to be made without withholding or at a reduced rate of
withholding. In addition, any Lender, if requested by Borrower or Agent, shall
deliver such other documentation prescribed by applicable law or reasonably
requested by Borrower or Agent as will enable Borrower or Agent to determine
whether or not such Lender is subject to backup withholding or information
reporting requirements.

          Without limiting the generality of the foregoing, in the event that
Borrower is resident for tax purposes in the United States of America, any
Foreign Lender shall deliver to Borrower and Agent (in such number of copies as
shall be requested by the recipient) on or prior to the date on which such
Foreign Lender becomes a Lender under this Agreement (and from time to time
thereafter upon the request of Borrower or Agent, but only if such Foreign
Lender is legally entitled to do so), whichever of the following is applicable:

                    (i) duly completed copies of Internal Revenue Service Form
     W-8BEN claiming eligibility for benefits of an income tax treaty to which
     the United States of America is a party,

                    (ii) duly completed copies of Internal Revenue Service Form
     W-8ECI,

                    (iii) in the case of a Foreign Lender claiming the benefits
     of the exemption for portfolio interest under section 881(c) of the Code,
     (x) a certificate to the effect that such Foreign Lender is not (A) a
     "bank" within the meaning of section 881(c)(3)(A) of the Code, (B) a "10
     percent shareholder" of Borrower within the meaning of section 881(c)(3)(B)
     of the Code, or (C) a "controlled foreign corporation" described in section
     881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue
     Service Form W-8BEN, or

                    (iv) any other form prescribed by applicable law as a basis
     for claiming exemption from or a reduction in United States Federal
     withholding tax duly completed together with such supplementary
     documentation as may be prescribed by applicable law to permit Borrower to
     determine the withholding or deduction required to be made.

               (f) Treatment of Certain Refunds. If Agent, a Lender or LC Issuer
determines, in its sole discretion, that it has received a refund or credit of
any Taxes or Other Taxes as to which it has been indemnified by Borrower or with
respect to which Borrower has paid additional amounts pursuant to this Section,
it shall pay to Borrower an amount equal to such refund or credit (but only to
the extent of indemnity payments made, or additional amounts paid, by Borrower
under this Section with respect to the Taxes or Other Taxes giving rise to such
refund or credit), net of all reasonable out-of-pocket expenses of Agent, such
Lender or LC


                                       46



Issuer, as the case may be, and without interest (other than any interest paid
by the relevant Governmental Authority with respect to such refund), provided
that Borrower, upon the request of Agent, such Lender or LC Issuer, agrees to
repay the amount paid over to Borrower (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to Agent, such Lender or
LC Issuer in the event Agent, such Lender or LC Issuer is required to repay such
refund or credit to such Governmental Authority. This paragraph shall not be
construed to require Agent, any Lender or LC Issuer to make available its tax
returns (or any other information relating to its taxes that it deems
confidential) to Borrower or any other Person.

          3.7 Survival of Indemnity. Determination of amounts payable under
Sections 2.9 and 3.5 hereof in connection with a LIBOR Rate Loan shall be
calculated as though each Lender funded its LIBOR Rate Loan through the purchase
of a deposit of the type and maturity corresponding to the deposit used as a
reference in determining the LIBOR Rate applicable to such Loan, whether in fact
that is the case or not. The obligations of Borrower under Sections 2.9, 3.5 and
3.6 hereof shall survive payment of the Obligations and termination of this
Agreement.

          3.8 Telephonic Notices. Borrower hereby authorizes Lenders and Agent
to extend, convert or continue Loans, to effect selections of LIBOR Rate Loans
and each Interest Period thereof and ABR Loans and to transfer funds, in each
case based on telephonic notices made by any Person or Persons who Agent or any
Lender in good faith believes to be acting on behalf of Borrower, it being
understood that the foregoing authorization is specifically intended to allow
Notices of Borrowing and Notices of Conversion/Continuation to be given
telephonically. Borrower agrees to deliver promptly to Agent a written
confirmation, if such confirmation is requested by Agent or any Lender, of each
telephonic notice signed by a Responsible Officer. If the written confirmation
differs in any material respect from the action taken by Agent and Lenders, the
records of Agent and Lenders shall govern, absent manifest error.

          3.9 Funding by Lenders; Presumption by Agent. (a) Unless Agent shall
have received notice from a Lender prior to the proposed date of any borrowing
of Loans that such Lender will not make available to Agent such Lender's Ratable
Share of such Loans, Agent may assume that such Lender has made such Ratable
Share available on such date in accordance with Section 2.3 hereof and may, in
reliance upon such assumption, make available to Borrower a corresponding
amount. In such event, if a Lender has not in fact made its Ratable Share of the
Loans available to Agent, then the applicable Lender and Borrower severally
agree to pay to Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to Borrower to but excluding the date of payment to Agent, at (i) in
the case of a payment to be made by such Lender, the Federal Funds Rate and (ii)
in the case of a payment to be made by Borrower, the interest rate otherwise
applicable to such Loans. If Borrower and such Lender shall pay such interest to
Agent for the same or an overlapping period, Agent shall promptly remit to
Borrower the amount of such interest paid by Borrower for such period. If such
Lender pays its Ratable Share of Loans to Agent, then the amount so paid shall
constitute such Lender's Loan. Any payment by Borrower shall be without
prejudice to any claim Borrower may have against a Lender that shall have failed
to make such payment to Agent.


                                       47



     (b) Unless Agent shall have received notice from Borrower prior to the date
on which any payment is due to Agent for the account of the Lenders or any LC
Issuer hereunder that Borrower will not make such payment, Agent may assume that
Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to Lenders or LC Issuer, as the case
may be, the amount due. In such event, if Borrower has not in fact made such
payment, then each of the Lenders or such LC Issuer, as the case may be,
severally agrees to repay to Agent forthwith on demand the amount so distributed
to such Lender or LC Issuer, with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to Agent, at the Federal Funds Rate.

          3.10 Replacement of Lenders. If any Lender is a Rejecting Lender under
Section 2.7(b) hereof, or any Lender requests compensation under Section 2.9
hereof, or if Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section 3.6
hereof, or if any Lender defaults in its obligation to fund Loans hereunder,
then Borrower may, at its sole expense and effort, upon notice to such Lender
and Agent, require such Lender to assign and delegate, without recourse (in
accordance with and subject to the restrictions contained in, and consents
required by, Section 11.7 hereof), all of its interests, rights and obligations
under this Agreement and the related Loan Documents to an Eligible Assignee that
shall assume such obligations (which Eligible Assignee may be another Lender, if
a Lender accepts such assignment), provided that:

               (a) Borrower shall have paid to Agent the assignment fee
specified in Section 11.7 hereof;

               (b) such Lender shall have received payment of an amount equal to
the outstanding principal of its Loans and participations in Reimbursement
Obligations, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder and under the other Loan Documents (including any
amounts under Section 3.5 hereof) from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or Borrower (in the case of
all other amounts);

               (c) in the case of any such assignment resulting from a claim for
compensation under Section 2.9 hereof or payments required to be made pursuant
to Section 3.6 hereof, such assignment will result in a reduction in such
compensation or payments thereafter; and

               (d) such assignment does not conflict with applicable law.

A Lender shall not be required to make any such assignment or delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling Borrower to require such assignment and delegation cease
to apply.

                    ARTICLE 4: REPRESENTATIONS AND WARRANTIES

          In order to induce Lenders, LC Issuers and Agent to enter into this
Agreement and to make the Revolving Credit Loans and Swingline Loans and to
issue the Facility L/Cs herein


                                       48



provided for, Borrower hereby, represents and warrants to each Lender, LC Issuer
and Agent that on the date hereof:

          4.1 Financial Statements. Borrower has heretofore furnished to each
Lender (a) the consolidated balance sheet of Borrower and its Subsidiaries as of
May 31, 2005, and the related consolidated statements of income, of
stockholders' equity and of cash flows for the fiscal year of Borrower then
ended, certified by an independent public accountant of recognized national
standing and (b) the consolidated unaudited balance sheet and income statement
of Borrower and its Subsidiaries as of August 31, 2005. Each of the foregoing
financial statements fairly presents, in all material respects, the financial
condition of Borrower and its Subsidiaries as of the date thereof and the
results of the operations of Borrower and its Subsidiaries for the period then
ended (subject, in the case of the August 31, 2005 statements, to year-end audit
adjustments) and, from the respective dates of the foregoing financial
statements to the date hereof, there has been no material adverse change in such
condition.

          4.2 Existence; Compliance with Law. Each of Borrower and Borrower's
Subsidiaries (a) is duly organized or formed, as appropriate, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
formation or organization, as appropriate, (b) has the requisite corporate,
partnership or limited liability company power and authority to conduct the
business in which it is currently engaged, (c) is qualified as a foreign entity
to do business under the laws of any jurisdiction where the failure to so
qualify would have a material adverse effect on the business of Borrower and
Borrower's Subsidiaries taken as a whole, and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
would not, in the aggregate, have a material adverse effect on the business,
operations, property or financial or other condition of Borrower and Borrower's
Subsidiaries taken as a whole or would not materially adversely affect the
ability of Borrower or the Subsidiary Guarantors to perform their respective
obligations under the Loan Documents.

          4.3 Power; Authorization; Enforceable Obligations. Borrower and each
Subsidiary Guarantor has the corporate, partnership or limited liability company
(as applicable) power and authority to make, deliver and perform the Loan
Documents to which it is a party and (in the case of Borrower) to borrow
hereunder, and has taken all corporate or other action necessary to be taken by
it to authorize (a) (in the case of Borrower) the borrowings on the terms and
conditions of this Agreement and the Notes, and (b) the execution, delivery and
performance of the Loan Documents to which it is a party. No consent, waiver or
authorization of, or filing with any Person (including without limitation any
Governmental Authority) is required to be made or obtained by Borrower in
connection with the borrowings hereunder or by Borrower or any Guarantor in
connection with the execution, delivery, performance, validity or enforceability
of the Loan Documents to which it is a party. This Agreement has been, and each
Note and the Subsidiary Guaranty Agreement will be, duly executed and delivered
on behalf of Borrower or each Subsidiary Guarantor (as the case may be), and
this Agreement constitutes, and each Note and Subsidiary Guaranty Agreement when
executed and delivered hereunder will constitute, a legal, valid and binding
obligation of Borrower or the Subsidiary Guarantors (as the case may be),
enforceable against Borrower or the Subsidiary Guarantors (as the case may be),
in accordance with its terms, subject to the effect, if any, of bankruptcy,
insolvency, reorganization, arrangement or other similar laws relating to or
affecting the rights of creditors generally and the limitations, if any, imposed
by the general principles of equity and public policy.


                                       49



          4.4 No Legal Bar. The execution, delivery and performance of this
Agreement and the Notes, the borrowings hereunder and the use of the proceeds
thereof and the execution, delivery and performance by the Subsidiary Guarantors
of the Subsidiary Guaranty Agreements (a) do not violate any Requirement of Law
or Contractual Obligation of Borrower or any of Borrower's Subsidiaries, (b) do
not contravene the articles of incorporation, charter, bylaws, partnership
agreement, articles or certificate of formation, operating agreement or other
organizational documents of Borrower or any of Borrower's Subsidiaries and (c)
do not result in, or require, the creation or imposition of any Lien on any of
its properties or revenues pursuant to any Requirement of Law or Contractual
Obligation.

          4.5 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of Borrower, threatened by or against Borrower or any of Borrower's
Subsidiaries or against any of their respective properties or revenues (a) with
respect to this Agreement, the Notes or the Subsidiary Guaranty Agreement or any
of the transactions contemplated hereby or thereby, or (b) which could
reasonably be expected to have a material adverse effect on the business,
operations, property or financial or other condition of Borrower and Borrower's
Subsidiaries taken as a whole.

          4.6 Regulation U. None of Borrower or any of Borrower's Subsidiaries
is engaged, nor will any of them engage, principally or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the proceeds
of any Loans will be used for "purchasing" or "carrying" "margin stock" as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of such Board of Governors. If requested by
Agent, Borrower and each of Borrower's Subsidiaries will furnish to Agent a
statement in conformity with the requirements of Federal Reserve Form U-l
referred to in said Regulation U to the foregoing effect.

          4.7 Investment Company Act. None of Borrower or any of Borrower's
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.

          4.8 ERISA. Borrower and Borrower's Subsidiaries are in compliance in
all material respects with ERISA. There has been no Reportable Event with
respect to any Plan. There has been no institution of proceedings or any other
action by PBGC or Borrower or any Commonly Controlled Entity to terminate or
withdraw or partially withdraw from any Plan under any circumstances which could
lead to material liabilities to PBGC or, with respect to a Multiemployer Plan,
the Reorganization or Insolvency (as each such term is defined in ERISA) of the
Plan.

          4.9 Disclosure. No representations or warranties made by Borrower in
this Agreement or in any other document furnished from time to time in
connection herewith (as such other documents may be supplemented from time to
time) contains or will contain any untrue statement of a material fact or omits
or will omit to state any material fact necessary to make the


                                       50



statements herein or therein, in light of the circumstances under which they
were made, not misleading.

          4.10 Subsidiary Information. Schedule 2 attached hereto contains the
name, principal place of business, all other places of business and percentage
of ownership of all of the Subsidiaries of Borrower as of the Closing Date that
are Guarantors. As of the Closing Date, the following additional Persons are
Subsidiaries of the Borrower and no such Subsidiary owns assets having an
aggregate value in excess of $250,000:

               Ashton Woods Florida L.L.C.
               Ashton Woods Butler L.L.C.
               Ashton Woods Lakeside L.L.C.
               Canyon Realty L.L.C.
               Ashton Houston Development LLC
               Ashton Brookstone, Inc.
               Black Amber Florida, Inc.
               Isleworth West Limited Partnership

Borrower has no other Subsidiaries.

          4.11 Schedules. Each of the Schedules to this Agreement contains true,
complete and correct information in all material respects.

          4.12 Environment. Borrower and Borrower's Subsidiaries have been
issued and will maintain all required federal, state, and local permits,
licenses, certificates and approvals relating to (a) emissions; (b) discharges
to service water or groundwater; (c) noise emissions; (d) solid or liquid waste
disposal; (e) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or hazardous wastes; or (f) other environmental, health
or safety matters, except to the extent the failure to have any such permit,
license, certificate or approval would not have a material adverse effect on
Borrower's and its Subsidiaries' consolidated operations, business or financial
condition. Neither Borrower nor any of Borrower's Subsidiaries have received
notice of, or has actual knowledge of any material violations of any federal,
state or local environmental, health or safety laws, codes or ordinances or any
rules or regulations promulgated thereunder. Except in accordance with a valid
governmental permit, license, certificate or approval, there has been no
material emission, spill, release or discharge into or upon (i) the air; (ii)
soils; (iii) service water or groundwater; (iv) the sewer, septic system or
waste treatment, storage or disposal system servicing any property of Borrower
or any of its Subsidiaries of any toxic or hazardous substances or hazardous
wastes at or from such property; and accordingly no such property has been
adversely affected, in any material respect, by any toxic or hazardous
substances or wastes. There has been no complaint, order, directive, claim,
citation or notice by any Governmental Authority or any person or entity with
respect to material violations of law or damages by reason of Borrower or
Borrower's Subsidiaries (1) air emissions; (2) spills, releases or discharges to
soils or improvements located thereon, surface water, groundwater or the sewer,
septic system or waste treatment, storage or disposal system servicing the
premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) use,
generation, storage, transportation or disposal of toxic or hazardous substances
or hazardous wastes; or (6) other environmental, health or safety matters
affecting Borrower or any of


                                       51



Borrower's Subsidiaries. Neither Borrower nor any of Borrower's Subsidiaries
have any material indebtedness, obligation or liability, absolute or contingent,
matured or unmatured, with respect to the storage, treatment, cleanup or
disposal of any solid waste, hazardous wastes, or other toxic or hazardous
substances. For purposes of this Section 4.12, a violation, emission, spill,
release, discharge, damage, adverse effect, indebtedness, obligation or
liability shall be deemed material if, and only if, such violation, emission,
spill, release, discharge, damage, adverse effect, indebtedness, obligation or
liability, alone or in the aggregate, would have a material adverse effect on
Borrower's and its Subsidiaries consolidated operations, business or financial
condition.

          4.13 Force Majeure Events. Neither the business nor the properties of
Borrower or any Subsidiary are affected by any fire, explosion, accident,
drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or
other casualty (whether or not covered by insurance), materially and adversely
affecting the business, properties or the operation of Borrower and its
Subsidiaries taken as a whole.

          4.14 Other Agreements. Other than as disclosed on Schedule 4.14
hereto, neither Borrower nor any Subsidiary is a party to any indenture, loan,
or credit agreement, or to any lease or other agreement or instrument or subject
to any charter, corporate or other restriction which could have a material
adverse effect on the business, properties, assets, operations, or condition,
financial or otherwise, of Borrower and its Subsidiaries, taken as a whole, or
the ability of Borrower or any Subsidiary to carry out its obligations under the
Loan Documents to which it is a party. Neither Borrower nor any Subsidiary is in
default in any respect in the performance, observance, or fulfillment of any of
the obligations, covenants, or conditions contained in any agreement or
instrument to which the Borrower or a Subsidiary is a party, and such default
under such agreement or instrument would reasonably be likely to result in a
material adverse effect on the business, properties, assets, operations, or
condition, financial or otherwise, of Borrower and its Subsidiaries, taken as a
whole.

          4.15 No Defaults on Outstanding Judgments or Orders. Borrower and each
Subsidiary have satisfied all unstayed and unappealed judgments in excess of
$1,000,000 in the aggregate (that are not covered by insurance), and neither
Borrower nor any Subsidiary is in default with respect to any judgments in
excess of $1,000,000 in the aggregate (that are not covered by insurance), or
any material writ, injunction, decree, rule, or regulation of any court,
arbitrator, or federal, state, municipal, or other governmental authority,
commission, board, bureau, agency, or instrumentality, domestic or foreign
applicable to Borrower or any Subsidiary.

          4.16 Ownership and Liens. Borrower and each Subsidiary have title to,
or valid leasehold interests in, all of their respective properties and assets,
real and personal, including the properties and assets and leasehold interests
reflected in the financial statements referred to in Section 4.1 hereof (other
than any properties or assets disposed of in the ordinary course of business),
and none of the properties and assets owned by Borrower or any Subsidiary and
none of their leasehold interests is subject to any Lien, except for (a)
Permitted Liens, (b) liens pursuant to Secured Indebtedness permitted under
Section 7.1, (c) Liens incurred or deposits made in the ordinary course of
business to secure performance of tenders, statutory obligations, surety and
appeal bonds, bid, leases, government contracts, performance and return-of-money


                                       52



bonds and similar obligations (exclusive of obligations for the payment of
borrowed money), (d) leases and subleases (or any Liens related thereto) granted
to others that do not materially interfere with the ordinary course of business
of Borrower and its Subsidiaries, (e) Liens on assets that are not included in
the Borrowing Base incurred in connection with a sale/leaseback transaction, (f)
judgment liens not giving rise to an Event of Default, (g) any right of first
refusal, right of first offer, option, contract or other agreement to sell an
asset, (h) Liens of a lessor under any Capital Leases, and (i) banker's liens
(and rights of set off) arising in accordance with applicable law.

          4.17 Operation of Business. Borrower and each Subsidiary possess all
material licenses, permits, franchises, patents, copyrights, trademarks, and
trade names, or rights thereto, required to conduct their respective businesses
substantially as now conducted and as presently proposed to be conducted and
neither Borrower nor any of its Subsidiaries is in violation of any valid rights
of others with respect to any of the foregoing where the failure to possess such
licenses, permits, franchises, patents, copyrights, trademarks, trade names or
rights thereto or the violation of the valid rights of others with respect
thereto may, in any one case or in the aggregate, adversely affect in any
material respect the financial condition, operations, properties, or business of
Borrower or any Subsidiary or the ability of Borrower and its Subsidiaries,
taken as a whole, to perform their respective obligations under the Loan
Documents to which they are a party.

          4.18 Taxes. All income tax liabilities or income tax obligations of
Borrower and each Subsidiary that are due (other than those being contested in
good faith by appropriate proceedings) have been paid or have been accrued by or
reserved for by Borrower.

          4.19 OFAC. None of Borrower, any Subsidiary of Borrower or any
Affiliate of Borrower or any Guarantor: (i) is a Sanctioned Person, (ii) has
more than ten percent (10%) of its assets in Sanctioned Entities, or (iii)
derives more than ten percent (10%) of its operating income from investments in,
or transactions with Sanctioned Persons or sanctioned countries by OFAC. The
proceeds of any Loan will not be used and have not been used to fund any
operations in, finance any investments or activities in or make any payments to,
a Sanctioned Person or a Sanctioned Entity.

                         ARTICLE 5: CONDITIONS PRECEDENT

          5.1 Conditions to Initial Loan(s). The obligation of the Lenders to
make the initial Loan(s), of the Swingline Lender to make Swingline Loans and of
any LC Issuer to issue, amend or extend any Facility L/C hereunder on the first
Borrowing Date is subject to the satisfaction of the following conditions
precedent on or prior to such date:

               (a) Notes. Each Lender shall have received its respective Note,
conforming to the requirements hereof and duly executed and delivered by a duly
authorized officer of Borrower.

               (b) Guaranty Agreements. The Guaranty Agreements shall have been
duly executed and delivered by all Guarantors to Agent.


                                       53



               (c) Borrowing Base Compliance. Borrower shall have delivered to
each Lender and Agent a Borrowing Base Certificate, certified by a Responsible
Officer of Borrower, which shows compliance with the provisions of Section
2.1(b) hereof as of November 22, 2005.

               (d) Legal Opinion of Counsel to Borrower. Agent shall have
received an executed legal opinion of Paul, Hastings, Janofsky & Walker LLP and
other local counsel to Borrower and Guarantors, dated as of the date hereof and
addressed to Lenders and Agent, substantially in the form of Exhibit E attached
hereto, and otherwise in form and substance reasonably satisfactory to each
Lender and Agent and covering such other matters incident to the transactions
contemplated hereby as each Lender and Agent or their respective counsel may
reasonably require.

               (e) Proceedings of Borrower. Agent shall have received a copy of
the resolutions (in form and substance satisfactory to Agent) of the board of
directors, members, managers or other governing body of Borrower authorizing (i)
the execution, delivery and performance, of this Agreement, (ii) the
consummation of the transactions contemplated hereby, (iii) the borrowings
herein provided for, and (iv) the execution, delivery and performance of the
Notes and the other documents provided for in this Agreement, all certified by
the secretary, manager or other appropriate representative of Borrower as of the
date hereof. Such certificate shall state that the resolutions set forth therein
have not been amended, modified, revoked or rescinded as of the date hereof.

               (f) Proceedings of Guarantors. Agent shall have received a copy
of the respective resolutions (in form and substance reasonably satisfactory to
Agent) of the board of directors, management committee or other governing body
of each of the Guarantors (or of Borrower or another Subsidiary of Borrower as
the sole shareholder or sole member of the applicable Guarantor where
appropriate), each resolution authorizing the execution, delivery and
performance of the Guaranty Agreement to which such Guarantor is a party, all
certified by the Secretary or Assistant Secretary (or other person in a
comparable position) of the respective Guarantor (or Borrower or Subsidiary) as
of the date hereof. Such certificate shall state that the resolutions set forth
therein have not been amended, modified, revoked or rescinded as of the date
hereof.

               (g) Incumbency Certificate of Borrower. Agent shall have received
a certificate of the secretary, manager or other appropriate representative of
Borrower, dated the date hereof, as to the incumbency and signature of the
officer(s), members or managers of each executing this Agreement, the Notes and
any certificate or other documents to be executed and delivered by Borrower
pursuant hereto or thereto.

               (h) Incumbency Certificates of Guarantors. Agent shall have
received a certificate of the Secretary (or other person in a comparable
position) of each of the Guarantors, dated the date hereof, as to the incumbency
and signatures of the officer(s) (or other person(s) in a comparable position)
of each executing the Guaranty Agreement to which such Guarantor is a party.

               (i) Organization Documents of Borrower. Agent shall have received
copies of (i) the organizational documents of Borrower, together with all
amendments, and a


                                       54



certificate of good standing, all certified by the appropriate governmental
officer in its jurisdiction of organization and (ii) the operating agreement or
comparable document of Borrower certified by the secretary, manager or other
appropriate representative of Borrower.

               (j) Organizational Documents of Guarantors. Agent shall have
received (i) with respect to each Guarantor that is a corporation (A) copies of
its articles or certificates of incorporation, including all amendments thereto,
and a certificate of good standing, all certified by the appropriate
governmental officer in its jurisdiction of incorporation and (B) the bylaws or
code of regulations of such Guarantor certified by the Secretary (or other
person in a comparable position) of each Guarantor, (ii) with respect to any
Guarantor that is a partnership, a true copy of its partnership agreement,
including all amendments thereto, certified by an officer of such partnership or
of its general partner, together with (in the case of any limited partnership)
copies of the certificates of limited partnerships and a certificate of good
standing, all certified by the appropriate governmental officer in its
jurisdiction of organization, and (iii) with respect to each Guarantor that is a
limited liability company, a copy of its operating agreement, including all
amendments thereto, certified by an officer of such limited liability company or
of its managing member, and a copy of its articles or certificate of formation
and a certificate of good standing, all certified by the appropriate officer of
the state of its formation.

               (k) No Proceeding or Litigation; No Injunctive Relief. No action,
suit or proceeding before any arbitrator or any Governmental Authority shall
have been commenced, no investigation by any Governmental Authority shall have
been commenced and no action, suit, proceeding or investigation by any
Governmental Authority shall have been threatened, against Borrower or any
Subsidiary of Borrower or any Owner Guarantor or any of the officers, directors
or managers of Borrower or any Subsidiary of Borrower or any Owner Guarantor,
seeking to restrain, prevent or change the transactions contemplated by this
Agreement in whole or in part or questioning the validity or legality of the
transactions contemplated by this Agreement or seeking damages in connection
with such transactions.

               (l) Consents, Licenses, Approvals, etc. Agent shall have received
true copies (certified to be such by Borrower or other appropriate party) of all
consents, licenses and approvals required in accordance with applicable law in
connection with the execution, delivery, performance, validity and
enforceability of the Loan Documents, if the failure to obtain such consents,
licenses or approvals, individually or in the aggregate, would have a material
adverse effect on Borrower and Borrower's Subsidiaries taken as a whole, or
would adversely affect the validity or enforceability of any of the foregoing
documents, and approvals obtained shall be in full force and effect and be
satisfactory in form and substance to Agent.

               (m) Compliance with Law. Neither Borrower nor any of Borrower's
Subsidiaries nor any Owner Guarantor shall be in violation in any material
respect of any applicable statute, regulation or ordinance, including without
limitation statutes, regulations or ordinances relating to environmental
matters, of any governmental entity, or any agency thereof, in any respect
materially and adversely affecting the business, property, assets, operations or
condition, financial or otherwise, of Borrower and Borrower's Subsidiaries taken
as a whole.


                                       55



               (n) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing hereunder prior to or after giving
effect to the making of the initial Loans (including the issuance of Facility
L/Cs).

               (o) No Material Adverse Change. There shall have been no material
adverse change in the consolidated financial condition or business or operations
of Borrower and Borrower's Subsidiaries from the date of Borrower's May 31, 2005
audited consolidated financial statements to the first Borrowing Date.

               (p) Fees. Borrower shall have paid to Agent the fees provided for
in the Agent's Fee Letter (which fees (except for any paid for the account of
Agent or Arranger) shall be paid by the Agent to the Lenders).

               (q) Financial Statements and Business Plan and Budget. Agent
shall have received the annual audited consolidated financial statements of
Borrower for the fiscal year ended May 31, 2005 and a copy of the management
prepared business plan and budget for the fiscal year ending May 31, 2006.

               (r) Compliance Certificate. Borrower shall have delivered to each
Lender and Agent the certificate of the Chief Financial Officer of Borrower
required to be delivered by Borrower quarterly pursuant to Section 6.2(a)
hereof, prepared for the period ending August 31, 2005.

               (s) Facility L/C Application. If the issuance of any Facility L/C
is part of the initial loan(s), Borrower shall have delivered to the applicable
LC Issuer a Facility L/C Application in accordance with Section 2.15 hereof for
each Facility L/C that Borrower has requested such LC Issuer to issue on the
first Borrowing Date.

               (t) Additional Matters. All corporate and other proceedings and
all other documents and legal matters in connection with the transactions
contemplated by the Loan Documents shall be reasonably satisfactory in form and
substance to each Lender and Agent and their respective counsel.

          5.2 Conditions to All Loans. In addition to the other terms and
conditions of this Agreement with respect to the making of Loans and the
issuance of Facility L/Cs, the obligation of each Lender to make any Loan and of
the LC Issuers to issue, amend or extend any Facility L/C hereunder on any date
(including without limitation the first Borrowing Date) is subject to the
satisfaction of the following conditions precedent as of such date:

               (a) Representations and Warranties. The representations and
warranties made by Borrower in this Agreement and any representations and
warranties made by Borrower or any Subsidiary of Borrower which are contained in
any certificate, document or financial or other statement furnished at any time
under or in connection herewith or therewith, shall be true and correct in all
material respects on and as of the date of such Loan or issuance of such
Facility L/C as if made on and as of such date unless stated to relate to a
specific earlier date.


                                       56



               (b) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on such date or after giving
effect to the Loan to be made or Facility L/C to be issued, amended or extended
on such date.

               (c) Facility L/C Application. In the case of the issuance,
amendment or extension of any Facility L/C, Borrower shall have delivered to the
applicable LC Issuer a Facility L/C Application in accordance with Section 2.15
hereof for each Facility L/C that Borrower has requested such LC Issuer to
issue, amend or extend.

               (d) Borrowing Base. Such borrowing or the issuance, amendment or
extension of such Facility L/C shall not violate the provisions of Section
2.1(b) hereof.

Each borrowing by Borrower and each submission of a Facility L/C Application
under this Agreement shall constitute a representation and warranty by Borrower
as of the date of such borrowing or submission of such Facility L/C Application
that the conditions contained in the foregoing paragraphs (a), (b), (c) and (d)
of this Section 5.2 have been satisfied.

                        ARTICLE 6: AFFIRMATIVE COVENANTS

          Borrower hereby agrees that, from the date hereof and so long as any
Commitment remains in effect, any portion of any Note or Reimbursement
Obligation remains outstanding and unpaid, any Facility L/C remains outstanding
that is not fully collateralized with cash in accordance with the provisions of
Article 8 hereof, or any other amount is owing to Agent or any Lender hereunder
(other than unmatured indemnification obligations), Borrower shall, and shall
cause each of its Subsidiaries to:

          6.1 Financial Statements. Furnish to Agent (with sufficient copies for
each Lender):

               (a) promptly after becoming available and in any event within one
hundred twenty (120) days after the close of each fiscal year of Borrower, the
audited consolidated financial statements of Borrower and the company-prepared
consolidating financial statements of Borrower and Subsidiaries of Borrower,
including a balance sheet as of the end of such year, the statement of profit
and loss for such year, and the statement of reconciliation of capital accounts
for such year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, accompanied by the related report of KPMG
LLP or another independent public accountant acceptable to Agent in its
reasonable discretion, which report shall be to the effect that such
consolidated statements have been prepared in accordance with GAAP consistently
followed throughout the period indicated except for such changes in such
principles with which the independent public accountants shall have concurred.
If upon a review of the audited consolidated financial statements of Borrower
and the company-prepared consolidating financial statements of Borrower and its
Subsidiaries, Agent is unable to reconcile such financial statements with one
another, then upon the request of Agent, Borrower will promptly furnish a
company-prepared reconciliation of the audited consolidated financial statements
of Borrower to the company-prepared consolidating financial statements of
Borrower;

               (b) promptly after becoming available and in any event within (i)
sixty (60) days after the end of the first, second, and third quarter and (ii)
ninety (90) days after the


                                       57



end of the fourth quarter, in each fiscal year of Borrower, the company-prepared
balance sheet of Borrower, the company-prepared consolidating financial
statements of Borrower, as of the end of such quarter, the company-prepared
statement of profit and loss of Borrower and its Subsidiaries for such quarter
and for the period from the beginning of the fiscal year to the close of such
quarter, and the company-prepared statement of reconciliation of capital
accounts of Borrower for such quarter and for the period from the beginning of
the fiscal year to the close of such quarter, setting forth in each case, in
comparative form, the corresponding figures for the corresponding period of the
preceding fiscal year, certified by the chief financial officer of Borrower to
have been prepared in accordance with GAAP consistently followed throughout the
period indicated except to the extent stated therein, subject to normal changes
resulting from year-end adjustments; and

               (c) promptly after becoming available and in any event within one
hundred twenty (120) days after the close of each fiscal year of each Owner
Guarantor (other than Little Shots), the financial statements of each such Owner
Guarantor, including a balance sheet as of the end of such year, the statement
of profit and loss for such year, and the statement of reconciliation of capital
accounts for such year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, which statements shall have
been prepared in accordance with GAAP consistently followed throughout the
period indicated, as set forth therein.

          6.2 Certificates; Other Information. Furnish to each Lender and Agent:

               (a) concurrently with the delivery of each financial statement
referred to in Section 6.1(a) above and each financial statement referred to in
Section 6.1(b) above, a certificate of the Chief Financial Officer of Borrower
(in the form of Exhibit F attached hereto or such other form as shall be
reasonably acceptable to Agent) stated to have been made after due examination
by such Chief Financial Officer (i) stating that, to the best of such officer's
knowledge, Borrower and each of its Subsidiaries during such period has observed
or performed in all material respects all of its covenants and other agreements,
and satisfied every condition contained in this Agreement and the Notes to be
observed, performed or satisfied by it, and that such Chief Financial Officer
has obtained no knowledge of any Default or Event of Default except as specified
in such certificate, and (ii) showing in detail the calculations supporting such
statement in respect of Sections 6.10, 6.11, 6.12, 7.1, 7.4, 7.5, 7.6(g), 7.10
and 7.12 hereof;

               (b) concurrently with the delivery of the financial statements
referred to in Section 6.1(a) above, a copy of the management prepared business
plan and budget of Borrower and its Subsidiaries for the current fiscal year;

               (c) within sixty (60) days after the end of each quarterly period
of each fiscal year, a sales report identifying as to Borrower and its
Subsidiaries the inventory of real estate operations, including Land and Housing
Units as of such date, designated in such categories as are reasonably required
by Agent; such summary shall include a delineation of sold or unsold items in
each category;

               (d) promptly upon receipt thereof, copies of all final reports
submitted to Borrower by independent certified public accountants in connection
with each annual, interim or


                                       58



special audit of the books of Borrower or any of its Subsidiaries made by such
accountants, including without limitation any final comment letter submitted by
such accountants to management in connection with their annual audit;

               (e) copies of all reports, notices and other information
furnished to any holder of any Subordinated Notes as and when such reports,
notices and other information are so furnished to such holder; and

               (f) promptly, on notice to Borrower, such additional financial
and other information as any Lender may from time to time reasonably request.

          6.3 Borrowing Base Certificate. Furnish to Agent as soon as available,
but in any event within twenty (20) days after the end of each calendar month, a
Borrowing Base Certificate, certified by the Chief Financial Officer of
Borrower, showing the calculation of the Borrowing Base as of the second (2nd)
to last Tuesday of such month.

          6.4 Compliance with Borrowing Base Requirements. At any time any
Borrowing Base Certificate required to be furnished to Agent in accordance with
Section 6.3 hereof indicates that the aggregate amount of Borrowing Base
Indebtedness outstanding exceeds the Borrowing Base, within fifteen (15)
calendar days after the delivery of such Borrowing Base Certificate to Agent,
(a) reduce the principal amount of the Loans and undrawn and drawn Facility L/Cs
(or, if no Loans are outstanding, provide cash collateral for undrawn Facility
L/Cs) or other Borrowing Base Indebtedness then outstanding by an amount
sufficient to reduce the aggregate amount of Borrowing Base Indebtedness
outstanding to be equal to or less than the Borrowing Base, or (b) deliver to
Agent a more current Borrowing Base Certificate that demonstrates that the
aggregate amount of Borrowing Base Indebtedness does not exceed the Borrowing
Base.

          6.5 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
Indebtedness and other material obligations of whatever nature, except (a)
without prejudice to the effectiveness of Section 9 hereof, any Indebtedness or
other obligations (including any obligations for taxes), when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of Borrower or its Subsidiaries, as the case may be, and
(b) any Non-Recourse Indebtedness.

          6.6 Maintenance of Existence. (a) Preserve, renew and keep in full
force and effect its corporate existence; provided, however, that any Subsidiary
may be dissolved or merged into another Subsidiary or Borrower so long as, in
the case of a merger into Borrower, Borrower is the surviving company, (b) take
all reasonable action to maintain all rights, privileges, contracts, copyrights,
patents, trademarks, trade names and franchises necessary or desirable in the
normal conduct of its business, and (c) comply with all Contractual Obligations
and Requirements of Law, except, in the case of (b) and (c) above, to the extent
that the failure to take such actions or comply with such Contractual
Obligations and Requirements of Law would not, in the aggregate, have a material
adverse effect on the business, operations, property or financial or other
condition of Borrower or of Borrower and its Subsidiaries, taken as a whole.


                                       59



          6.7 Maintenance of Property, Insurance. Keep all property useful in
and necessary to its business in good working order and condition; maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks (but including
in any event public liability, general liability and business interruption
insurance) as are usually insured against in the same general area by companies
engaged in the same or a similar business; and furnish to Agent, upon written
request, full information as to the insurance carried.

          6.8 Inspection of Property; Books and Records; Discussions. Keep
proper books of record and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities, subject in the case
of interim statements to year-end audit adjustments; and permit representatives
of each Lender and Agent, upon reasonable notice to Borrower, to visit and
inspect any of its properties, and examine and make abstracts from any of its
books and records at any reasonable time and as often as may reasonably be
requested, and to discuss the business, operations, properties and financial and
other condition of Borrower and its Subsidiaries with officers and employees of
Borrower and its Subsidiaries and, if notice thereof is given to Borrower prior
to the date of such discussions, with its independent certified public
accountants.

          6.9 Notices. Promptly give notice to Agent:

               (a) of the occurrence of any Default or Event of Default;

               (b) of any (i) default or event of default under any loan or
Letter of Credit agreement binding upon Borrower or any of its Subsidiaries,
(ii) default under any other Contractual Obligation that would enable the
obligee of the Contractual Obligations to compel Borrower or any of its
Subsidiaries to immediately pay all amounts owing thereunder or otherwise
accelerate payments thereunder and would have a material adverse effect on
Borrower and its Subsidiaries taken as a whole, or (iii) litigation,
investigation or proceeding which may exist at any time between Borrower or any
Subsidiary and any Governmental Authority, which, if adversely determined, would
have a material adverse effect on the business, operations, property or
financial or other condition of Borrower and its Subsidiaries taken as a whole;

               (c) of any litigation or proceeding affecting Borrower or any of
its Subsidiaries (i) (A) in which the amount involved is $1,000,000 or more and
not covered by insurance, or (B) which, in the reasonable opinion of a
Responsible Officer of Borrower, would, if adversely determined, have a material
adverse effect on Borrower and its Subsidiaries taken as a whole, or (ii) in
which injunctive or similar relief is sought and which, in the reasonable
opinion of a Responsible Officer of Borrower, would, if adversely determined,
have a material adverse effect on Borrower and its Subsidiaries taken as a
whole;

               (d) of the following events, as soon as possible and in any event
within thirty (30) days after Borrower knows: (i) the occurrence of any
Reportable Event with respect to any Plan with respect to which the PBGC has not
waived the thirty (30) day reporting requirement, or (ii) the institution of
proceedings or the taking or expected taking of any other action by PBGC or
Borrower or any Commonly Controlled Entity to terminate or withdraw or partially
withdraw from any Plan under circumstances which could lead to material
liability to


                                       60



the PBGC or, with respect to a Multiemployer Plan, the Reorganization or
Insolvency (as each such term is defined in ERISA) of the Plan and in addition
to such notice, deliver to each Lender and Agent whichever of the following may
be applicable: (A) a certificate of a Responsible Officer of Borrower setting
forth details as to such Reportable Event and the action that Borrower or
Commonly Controlled Entity proposes to take with respect thereto, together with
a copy of any notice of such Reportable Event that may be required to be filed
with PBGC, or (B) any notice delivered by PBGC evidencing its intent to
institute such proceedings or any notice to PBGC that such Plan is to be
terminated, as the case may be; and

               (e) of a material adverse change in the business, operations,
property or financial condition of Borrower and its Subsidiaries taken as a
whole.

Each notice pursuant to this Section 6.9 shall be accompanied by a statement of
a Responsible Officer of Borrower setting forth details of the occurrence
referred to therein and stating what action Borrower proposes to take with
respect thereto. For all purposes of clause (d) of this Section 6.9, Borrower
shall be deemed to have all knowledge or knowledge of all facts attributable to
the administrator of such Plan if such Plan is a Single Employer Plan.

          6.10 Maintenance of Tangible Net Worth. Maintain at all times Tangible
Net Worth in amounts at all times equal to or exceeding (i) $90,260,170, plus
(ii) fifty percent (50%) of the Consolidated Earnings for each quarter after
November 30, 2004 (excluding any quarter in which Consolidated Earnings are less
than zero (0)), plus (iii) fifty percent (50%) of the net proceeds or other
consideration received by Borrower for any capital stock issued or other equity
interests or sold after the date of this Agreement.

          6.11 Maintenance of Leverage Ratio. Maintain a Leverage Ratio not in
excess of 2.25 to 1.0 (as determined on the last day of each fiscal quarter).

          6.12 Maintenance of Interest Coverage Ratio. Maintain an Interest
Coverage Ratio of not less than 2.50 to 1.00 (as determined on the last day of
each fiscal quarter for the four fiscal quarter period ending on the last day of
such fiscal quarter).

          6.13 Additional Guarantors. (a) Cause (i) each new Subsidiary (which
is not a Subsidiary of Borrower on the date of this Agreement) of Borrower, (ii)
any Subsidiary of Borrower formed or acquired after the date of this Agreement
and (iii) any Subsidiary of Borrower existing on the Closing Date but which is
not a Guarantor if such Subsidiary at any time owns assets having an aggregate
value in excess of $250,000, to become a "Subsidiary Guarantor" by execution and
delivery of a Supplemental Subsidiary Guaranty by such Subsidiary to Agent, and
to deliver such proof of corporate or other appropriate action, incumbency of
officers, opinions of counsel and other documents delivered by the Subsidiary
Guarantors pursuant to Section 5.1 hereof or as Agent shall have reasonably
requested in each case, on or before the date 10 days prior to the last day of
the fiscal quarter in which such Subsidiary is formed, acquired or first owns
assets in excess of $250,000.

               (b) Cause each Person (other than any Guarantor) that obtains
after the date of this Agreement a direct ownership or equity interest in
Borrower (other than a Special Membership Interest, as such term is defined in
the Amended and Restated Regulations of the


                                       61



Borrower dated as of September 1, 2005, as amended November 29, 2005 (the "AW
Regulations"), which interest is limited to the special allocations of the
profits and cash distributions from the Pinery Joint Venture and which, except
as expressly provided in the AW Regulations, shall not confer any rights to
participate in the management or operation of the Borrower) or Little Shots
after the date of this Agreement to become an "Owner Guarantor" by execution and
delivery of a Supplemental Owner Guaranty by such Person to Agent, and to
deliver such proof of corporate or other appropriate action, incumbency of
officers, opinions of counsel and other documents delivered by the Owner
Guarantors pursuant to Section 5.1 hereof or as Agent shall have reasonably
requested in each case, on or before the date 10 days prior to the last day of
the fiscal quarter in which such Person became a direct holder of ownership or
equity interests in Borrower or Little Shots.

          6.14 Interest Rate Contracts. Borrower may enter into Interest Rate
Contracts with any Lender or other Person acceptable to Agent for the purpose of
hedging its interest rate risk.

                          ARTICLE 7: NEGATIVE COVENANTS

          Borrower hereby agrees that, from the date hereof and so long as the
Commitment remains in effect, any portion of any Note or Reimbursement
Obligation remains outstanding and unpaid, any Facility L/C remains outstanding
that is not fully collateralized with cash in accordance with the provision of
Article 8 hereof, or any other amount is owing to Agent, any LC Issuer or any
Lender hereunder (other than unmatured indemnification obligations), Borrower
shall not, nor shall it permit any of its Subsidiaries to, directly or
indirectly:

          7.1 Limitation on Secured Indebtedness. Create, incur, assume or
suffer to exist any Secured Indebtedness exceeding $50,000,000 in aggregate
principal amount at any time outstanding.

          7.2 Easements Encumbrances, Liens and Restrictive Covenants. With
respect to any of the Property included in the Borrowing Base, Borrower shall
not, without the prior written consent of Agent, create, place, suffer or permit
to be created or placed or, through any act or failure to act, acquiesce in the
placing or allow to remain, any Lien, regardless of whether same is expressly
subordinate to the Obligations, or grant any easement or impose any restrictive
covenants, or execute or file any subdivision plot, other than Permitted Liens;
or contractually agree with any other Person to provide such Person a negative
pledge, or other covenant similar to this Section 7.2, except as set forth in
Section 4.11 of the Indenture, and, with respect to specific collateral pledged
(excluding in any case any assets included in the Borrowing Base), except as set
forth in documents evidencing Secured Debt.

          7.3 Mergers, etc. Except as permitted under Section 6.6, merge or
consolidate with, or sell, assign, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of their
Properties (whether now owned or hereafter acquired) to any Person.


                                       62



          7.4 Limitation on Unimproved Entitled Land. Permit at any time the net
book value of Unimproved Entitled Land to exceed twenty-five percent (25%) of
Adjusted Tangible Net Worth.

          7.5 Land Components. Permit Land Value at any time to exceed one
hundred fifty percent (150%) of Adjusted Tangible Net Worth.

          7.6 Investments, Loans and Advances. Make or permit to remain
outstanding any loans or advances to or investments in any Person, except that
the foregoing restriction shall not apply to:

               (a) investments, loans or advances, the material details of which
have been set forth in the financial statements delivered to Agent pursuant to
Section 5.1(q) hereof or are disclosed to Agent and Lenders in Schedule 7.6
hereto;

               (b) investments in or loans or advances to Subsidiary Guarantors;

               (c) investments in or loans or advances to Subsidiaries which are
not Guarantors; provided that any such investments, loans and advances do not
exceed $250,000 in the aggregate per Subsidiary at any one time;

               (d) investments in direct obligations of the United States of
America or any agency thereof;

               (e) investments in certificates of deposit of maturities less
than one (1) year, issued by commercial banks in the United States of America
having capital and surplus in excess of $50,000,000;

               (f) investments in commercial paper of maturities less than one
(1) year, if at the time of purchase such paper is rated in either of the two
highest rating categories of S&P, Moody's or, if either the S&P or Moody's
rating is not available, any other rating agency selected by Agent; and

               (g) investments in, loans or advances to, or, as indicated in
Section 7.9(xiv) hereof, guarantees of indebtedness of, Joint Ventures in an
aggregate amount not to exceed thirty-five percent (35%) of Adjusted Tangible
Net Worth.

          7.7 Transactions With Affiliates. Engage in any transaction with any
Affiliate of Borrower or any Subsidiary on terms less favorable to Borrower or
such Subsidiary than would be obtainable at the time in comparable transactions
with Persons not Affiliates of the Borrower or any Subsidiary, provided that
nothing herein shall be deemed to restrict any capital contribution or equity
purchase by any Affiliate of the Borrower to or from the Borrower or any
Distribution made by the Borrower in accordance with Section 7.10 hereof.

          7.8 Limitation on Payment of Subordinated Indebtedness. Pay, repay,
purchase or defease any Subordinated Indebtedness, directly or indirectly, in
cash or in other property, or by set-off or in any other manner, unless and
until all Obligations have been paid in full and all Commitments have been
terminated. Notwithstanding the foregoing, Borrower or


                                       63



any Subsidiary may make scheduled payments of interest on the Subordinated
Indebtedness, may redeem Subordinated Indebtedness pursuant to provisions of
such Subordinated Indebtedness allowing redemption at the option of the Borrower
with the proceeds of any equity offering or after such Subordinated Indebtedness
has been outstanding for a defined period, may purchase Subordinated
Indebtedness by issuer tender offer or open market purchase and may repay
Subordinated Indebtedness upon its scheduled maturity, so long as no Default or
Event of Default has occurred and is continuing or would occur as a result of
making such payment, redemption, purchase or repayment, as the case may be.

          7.9 Indebtedness. Neither Borrower nor any Subsidiary will create,
incur or suffer to exist any Indebtedness, except, without duplication and
without duplication as to Borrower and Subsidiaries:

                    (i) The Obligations.

                    (ii) Indebtedness existing on the date hereof (and not
     otherwise permitted under this Section 7.9) and described in Schedule 7.9
     hereto and Refinancing Indebtedness with respect thereto.

                    (iii) Indebtedness owed to a seller of Unimproved Entitled
     Land, Lots Under Development or Finished Lots under the terms of which
     Borrower or such Subsidiary, as obligor, is required to make a payment upon
     the future sale of such Unimproved Entitled Land, Lots Under Development or
     Finished Lots in an amount not to exceed five percent (5%) of the gross
     sales price or, in the case of profit sharing agreements between such
     seller and Borrower or such Subsidiary, an amount that is reasonable and
     customary in the industry and market, provided, that such Indebtedness is
     subordinated to the Obligations in a manner satisfactory to Agent.

                    (iv) Rate Hedging Obligations entered into in respect of the
     Obligations.

                    (v) Intercompany Indebtedness between Borrower and any
     Guarantor or between any Guarantors.

                    (vi) Trade accounts payable and accrued expenses arising or
     occurring in the ordinary course of business.

                    (vii) Indebtedness owing under Capital Leases.

                    (viii) Indebtedness with respect to Facility L/Cs.

                    (ix) Indebtedness consisting of taxes payable, obligations
     in respect of, customer deposits and obligations under lot purchase
     agreements, all to the extent incurred in the ordinary course of Borrower's
     or any Subsidiary's business.

                    (x) Indebtedness under the Subordinated Notes.


                                       64



                    (xi) Non-Recourse Indebtedness secured by purchase-money
     Liens on any Property hereafter acquired or the assumption of any Lien on
     Property existing at the time of such acquisition (and not created in
     contemplation of such acquisition), or by a Lien incurred in connection
     with any conditional sale or other title retention; provided that

                         (A) Any Property subject to any of the foregoing is
          acquired by Borrower or any Subsidiary in the ordinary course of its
          respective business and the Lien on any such Property attaches to such
          asset concurrently or within ninety (90) days after the acquisition
          thereof; and

                         (B) Each Lien shall attach only to the Property so
          acquired.

                    (xii) Performance bonds, completion bonds, guarantees of
     performance, and guarantees of Indebtedness of a special district entered
     into in the ordinary course of business.

                    (xiii) Public Indebtedness, so long as such Indebtedness is
     pari passu with the Obligations.

                    (xiv) Indebtedness arising under a guarantee of indebtedness
     of any Joint Venture (provided that such guarantee shall be deemed to be an
     investment in such Joint Venture and subject to the limitation in Section
     7.6(g) hereof).

                    (xv) Indebtedness which arises pursuant to a guarantee of
     payment or collection, guaranteeing the Indebtedness of Borrower or any
     Subsidiary which is permitted under clauses (i) through (x) or (xii) or
     (xiii) of this Section 7.9.

          7.10 Limitation on Distributions. Declare or make, directly or
indirectly, any Distribution, or incur any obligation (contingent or otherwise)
to do so, except that, so long as no Default shall have occurred and be
continuing at the time of any Distribution or would result therefrom, Borrower
may make Distributions on any date in an amount not to exceed

                    (i) fifty percent (50%) of Consolidated Earnings earned
     between June 1, 2004 and the date of such Distribution, plus

                    (ii) one hundred percent (100%) of the aggregate amount of
     cash or Cash Equivalents received by the Borrower either (x) as
     contributions to common equity of the Borrower after June 1, 2005 or (y)
     from the issuance and sale of equity interests after such date, other than
     any such amounts received from a Subsidiary of the Borrower, minus

                    (iii) the amount of any Distributions previously made
     between June 1, 2004 and the date of such Distribution.


                                       65



     Further, notwithstanding the foregoing, so long as no Default shall have
occurred and be continuing at the time of any Distribution or would result
therefrom, Borrower may make Distributions in addition to Distributions made
pursuant to the foregoing limitations, to its direct parents in amounts required
to pay federal, state and local income taxes payable by such direct parent that
are solely attributable to the income of the Borrower and its Subsidiaries by
virtue of the Borrower being a pass-through entity for federal or state income
tax purposes; provided, however, that (a) the amount of Distributions paid with
respect to such tax obligations at any time will not exceed the amount of such
federal, state and local income taxes actually owing by any such direct parent
at such time for the respective period (excluding any tax liability of any such
direct parent not attributable to the Borrower or its Subsidiaries) (provided
that the Borrower may make periodic Distributions based on an estimate of such
tax liability with an annual reconciliation at the end of each tax year) and (b)
any refunds received by or on behalf of, or any overpayment based on the annual
reconciliation to, any of the Borrower's direct parents attributable to the
Borrower and its Subsidiaries shall promptly be returned by such direct parent
to the Borrower or credited against the Borrower's ability to make additional
Distributions pursuant to the foregoing provisions of this Section 7.10.

          7.11 Ownership and Management. Permit the sale or transfer of more
than twenty percent (20%) of the ownership interests in Borrower or any
Subsidiary Guarantor; provided, however, that there shall be no limit on the
sale or transfer of the ownership interests in Borrower to any Owner Guarantor.
Upon any sale or transfer of all of the direct ownership interests of Borrower
and Little Shots held by any Owner Guarantor that is not prohibited by this
Agreement, such Owner Guarantor's obligations under the Owner Guaranty
automatically shall be terminated in accordance with Section 10 of the Owner
Guaranty.

          7.12 Housing Inventory. Permit the number of Speculative Housing Units
and Model Housing Units, as at the end of any fiscal quarter, to exceed the
number of Housing Unit Closings occurring during the period of twelve (12)
months ending on the last day of such fiscal quarter, multiplied by thirty-five
percent (35%).

          7.13 Nature of Business. Permit any material change to be made in the
character of their business as carried on at the date hereof.

          7.14 Sale or Discount of Receivables. Discount, sell without recourse
or sell for less than the greater of the face or market value thereof, any of
its notes receivable or accounts receivable.

          7.15 Increase in Capital. Increase the capital of Borrower or any
Guarantor by transferring assets among Borrower and Guarantors or Borrower's
Affiliates to Borrower and Guarantor, provided that nothing herein shall
prohibit the purchase of additional equity interests from, or the making of a
capital contribution to, Borrower by any parent of Borrower that is also a
Guarantor.

          7.16 Capital Assets. Make expenditures for capital or fixed assets in
any fiscal year of Borrower if such expenditure would result in a violation of
the terms of this Agreement.


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          7.17 Environmental Responsibilities. Do any of the following: (i)
cause or permit any Hazardous Materials to be placed, held, located, escaped,
leaked, spilled, discharged, emitted, released or disposed of on, from, under or
at the Premises in violation of any Environmental Law if such violation would
reasonably be likely to result in a material adverse effect on the business,
properties, assets, operations, or condition, financial or otherwise, of
Borrower and its Subsidiaries, taken as a whole, (ii) cause or permit the
Premises while under the control or ownership of Borrowers or any Subsidiary to
be used as a dumpsite or storage site (whether permanent or temporary) for any
Hazardous Material without first having in place adequate insurance of a
sufficient amount to totally cover (subject to deductibility clause not to
exceed $100,000) any and all potential liability of any nature or amount arising
from said events, and (iii) except if done in accordance with applicable law, in
all material respects, clean up or remove any Hazardous Materials placed, held,
located, escaped, leaked, spilled, discharged, emitted, released or disposed of
on, from, under or at the Premises.

                           ARTICLE 8: CASH COLLATERAL

          8.1 Facility L/C Collateral Account. Except as limited by the last
sentence of Section 8.1, Borrower agrees that it will, upon the request of Agent
or the Required Lenders and until the final expiration date of any Facility L/C
and thereafter as long as any amount is payable to any LC Issuer or the Lenders
in respect of any Facility L/C, maintain a special collateral account pursuant
to arrangements satisfactory to Agent (the "Facility L/C Collateral Account") at
Agent's office in the name of Borrower but under the sole dominion and control
of Agent, for the benefit of the Lenders and LC Issuers and in which Borrower
shall have no interest other than set forth in Sections 8.2, 8.3 or 8.4 hereof.
Borrower hereby pledges, assigns and grants to Agent, on behalf of and for the
ratable benefit of the Lenders and LC Issuers, a security interest in all of
Borrower's right, title and interest in and to all funds which may from time to
time be on deposit in the Facility L/C Collateral Account to secure the prompt
and complete payment and performance of the Obligations. Agent will invest any
funds on deposit from time to time in the Facility L/C Collateral Account in
certificates of deposit of Wachovia Bank having a maturity not exceeding 30
days. Nothing in this Section 8.1 shall either require Borrower to deposit any
funds in the Facility L/C Collateral Account, obligate Agent to require Borrower
to deposit any funds in the Facility L/C Collateral Account or limit the right
of Agent to release to the Person entitled thereto any funds held in the
Facility L/C Collateral Account, in each case other than as required by Sections
8.2, 8.3 or 8.4 hereof.

          8.2 Event of Default under Paragraph (5) of Article 9. Upon the
occurrence of an Event of Default specified in paragraph (5) of Article 9,
Borrower will be and become thereby unconditionally obligated, without any
further notice, act or demand, to pay to Agent an amount in immediately
available funds, which funds shall be held in the Facility L/C Collateral
Account, equal to the difference of (x) the amount of Facility L/C Obligations
at such time, less (y) the amount on deposit in the Facility L/C Collateral
Account at such time which is free and clear of all rights and claims of third
parties and has not been applied against the Obligations (such difference, the
"Collateral Shortfall Amount").

          8.3 Other Events of Default. If any Event of Default (other than an
Event of Default specified in paragraph (5) of Article 9) occurs, the Required
Lenders (or Agent with the consent of the Required Lenders) may, upon notice to
Borrower and in addition to the continuing


                                       67



right to demand payment of all amounts payable under the Loan Documents, make
demand on Borrower to pay, and Borrower will, forthwith upon such demand and
without any further notice or act, pay to Agent the Collateral Shortfall Amount,
which funds shall be deposited in the Facility L/C Collateral Account.

          8.4 Cure; Termination.

               (a) If the Event of Default that resulted in the requirement for
deposit of funds in the Facility L/C Collateral Account is cured, and provided
no other Event of Default has occurred that is then continuing, Agent shall,
promptly upon request from Borrower, pay to or as directed by Borrower the
amount on deposit in the Facility L/C Collateral Account. Nothing contained in
this paragraph shall waive, limit or otherwise affect the rights of Agent or the
Lenders or the obligations of Borrower under this Article 8 if any other Event
of Default shall occur.

               (b) If the Aggregate Commitment is terminated (whether by
acceleration, demand or otherwise), then, not later than simultaneously with
such termination, and without limitation of Agent's and Lender's right to demand
payment of all amounts payable under the Loan Documents, Borrower shall pay to
Agent the Collateral Shortfall Amount, which funds shall be deposited in the
Facility L/C Collateral Account; provided, however, that (i) if all Obligations
of Borrower (other than Facility L/C Obligations in respect of issued and
outstanding Facility L/Cs that have not been drawn upon) have been paid in full
(other than unmatured indemnification obligations), and (ii) Borrower shall have
provided to Agent and the LC Issuers, as security for the remaining Facility L/C
Obligations, one or more Letters of Credit, in an aggregate amount at least
equal to such remaining Facility L/C Obligations, issued by a Lender or Lenders,
and in form and substance, reasonably satisfactory to Agent and the LC Issuers,
the foregoing requirement for deposit of funds in the Facility L/C Collateral
Account shall not apply.

        ARTICLE 9: DEFAULTS, EVENTS OF DEFAULT; DISTRIBUTION OF PROCEEDS
                             AFTER EVENT OF DEFAULT

          Upon the occurrence of any of the following events:

               (1) Borrower shall fail to pay any principal of any Note or make
any reimbursement (including payment of Reimbursement Obligations) in connection
with any Facility L/C when due in accordance with the terms thereof and such
failure shall continue uncured for five (5) Business Days; or

               (2) Borrower shall fail to pay (a) any interest on any Note or in
connection with any Facility L/C, or (b) any fee, charge or other amount payable
hereunder, and such failure shall continue uncured for five (5) Business Days;
or

               (3) any representation or warranty made or deemed made by
Borrower or any Guarantor herein, in any other Loan Document or which is
contained in any certificate, document or financial or other statement furnished
at any time under or in connection herewith or therewith, shall prove to have
been incorrect in any material respect on or as of the date made or deemed made;
or


                                       68



               (4) Borrower shall default in the observance or performance of
any covenant or agreement contained in any other provision of this Agreement
which default shall remain uncured thirty (30) days after Agent or any Lender
notifies Borrower that such a default has occurred, which notice shall specify
the nature of the default; or

               (5) (a) Borrower, any Owner Guarantor or any of Borrower's
Subsidiaries shall commence any case, proceeding or other action (i) under any
existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (ii) seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or any substantial part of
its assets, or Borrower, any Owner Guarantor or any of Borrower's Subsidiaries
shall make a general assignment for the benefit of its creditors; or (b) there
shall be commenced against Borrower, any Owner Guarantor or any of Borrower's
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (a) above which (i) results in the entry of an order for relief of any
such adjudication or appointment, and (ii) remains undismissed, undischarged or
unbonded for a period of 60 days; or (c) there shall be commenced against
Borrower, any Owner Guarantor or any of Borrower's Subsidiaries any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (d) Borrower, any Owner Guarantor or
any of Borrower's Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (a), (b) or (c) above; or (e) Borrower, any Owner Guarantor or
any of Borrower's Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due; or

               (6) Borrower, any Owner Guarantor or any Subsidiary of Borrower
shall (a) default in any payment of principal of or interest on any Indebtedness
(other than the Obligations) or in the payment of any Contingent Obligation
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness or Contingent Obligation was created, and the
aggregate principal amount then outstanding of all such Indebtedness and
Contingent Obligations of Borrower, the Owner Guarantors and all Subsidiaries
exceeds $1,000,000, or (b) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Contingent
Obligation or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such
Contingent Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due or repurchased, prepaid, defeased or
redeemed prior to its stated maturity or such Contingent Obligation to become
payable; or

               (7) (a) any party in interest (as defined in Section 3(14) of
ERISA) affiliated with Borrower or any of Borrower's Subsidiaries shall engage
in any "prohibited transaction" (as defined in Section 406 of ERISA or Section
4975 of the Code) involving any


                                       69



Plan, (b) any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan, (c) a
Reportable Event shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or institution of
proceedings is, in the opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, and, in the case of
a Reportable Event, the continuance of such Reportable Event unremedied for
thirty (30) days after notice of such Reportable Event pursuant to Section 4043
(a), (c) or (d) of ERISA is given or, in the case of institution of proceedings,
the continuance of such proceedings for thirty (30) days after commencement
thereof, (d) any Single Employer Plan shall terminate for purposes of Title IV
of ERISA, or (e) any other event or condition shall occur or exist with respect
to a Single Employer Plan, and in each case in clauses (a) through (e) above,
such event or condition, together with all other such events or conditions, if
any, could subject Borrower or any of Borrower's Subsidiaries to any tax,
penalty or other liabilities in the aggregate material in relation to the
business, operations, property or financial or other condition of Borrower or of
Borrower and Borrower's Subsidiaries taken as a whole; or

               (8) one or more final judgments or decrees shall be entered
against Borrower, or any of Borrower's Subsidiaries involving in the aggregate a
liability (not covered by insurance) of $1,000,000 or more and all such
judgments or decrees in excess of $1,000,000 shall not have been vacated,
satisfied, discharged, or stayed or bonded pending appeal within 30 days from
the entry thereof; or

               (9) any subordination agreement that evidences any Subordinated
Indebtedness (i) ceases to be the legal, valid and binding agreement of any
Person party or subject thereto, enforceable against such Person in accordance
with its terms or a payment is made by Borrower or any other obligor in respect
of such Subordinated Indebtedness in violation of any provision thereof, or (ii)
shall be terminated, invalidated or set aside, or be declared ineffective or
inoperative or the Indebtedness related thereto is in any way not fully
subordinate to all of (A) Borrower's Indebtedness and other liabilities to
Lenders and Agent under this Agreement and the Notes or (B) any Guarantor's
liabilities to Lenders and Agent under any Guaranty Agreement; or

               (10) any event of default under or in connection with any
Subordinated Note;

then, and in any such event, (a) if such event is an Event of Default specified
in paragraph (5) above, the Commitments, if still outstanding, shall
automatically and immediately terminate and all Obligations shall immediately
become due and payable and Borrower shall immediately cash collateralize all
outstanding Facility L/Cs in accordance with Article 8 hereof, and (b) if such
event is any other Event of Default and is continuing, either or both of the
following actions may be taken: (i) with the consent of the Required Lenders,
Agent may, or upon the request of the Required Lenders, Agent shall, by notice
to Borrower, declare the Commitments to be terminated forthwith, whereupon the
Commitments shall immediately terminate and, upon demand by Agent, Borrower
shall fully cash collateralize all outstanding Facility L/Cs in accordance with
Article 8 hereof; and (ii) with the consent of the Required Lenders, Agent may,
or upon the request of the Required Lenders, Agent shall, by notice of default
to Borrower,


                                       70



declare the full amount of all outstanding Obligations to be due and payable
forthwith, whereupon the same shall immediately become due and payable. Except
as expressly provided above in this Article 9, presentment, demand, protest and
all other notices of any kind are hereby expressly waived. Additionally, Agent
and each Lender may exercise any and all other rights and remedies available to
Agent and each Lender at law or in equity to the extent not inconsistent with
the rights specifically granted to Agent and each Lender hereunder.

          Notwithstanding any provisions concerning distribution of payments to
the contrary in this Agreement, so long as any Event of Default exists that has
not been waived by all Lenders, each Lender shall share in any payments or
proceeds, including proceeds of any collateral, received by Agent or any Lender
made or received at any time from and after any Event of Default ("Proceeds
after Default") in an amount equal to such Lender's Ratable Share of the
Proceeds after Default; provided, however, if any one or more of the Lender(s)
has not made any funding when required hereunder, the distribution of Proceeds
after Default shall be adjusted so that each Lender shall receive Proceeds after
Default in an amount equal to (a) the Proceeds after Default multiplied by (b)
the percentage (rounded to five decimal places) of the total amount outstanding
funded by all Lenders that such Lender has actually funded (including the amount
of such Lender's participation in outstanding Facility L/Cs). If necessary,
Agent and each Lender shall use the adjustments procedure set forth in Section
11.8(b) hereof to make the appropriate distributions to Lenders as set forth in
this paragraph of this Article 9.

                              ARTICLE 10: THE AGENT

          10.1 Appointment and Authority. Each of the Lenders and LC Issuers
hereby irrevocably appoints Wachovia Bank to act on its behalf as Agent
hereunder and under the other Loan Documents and authorizes Agent to take such
actions on its behalf and to exercise such powers as are delegated to Agent by
the terms hereof or thereof, together with such actions and powers as are
reasonably incidental thereto. The provisions of this Article are solely for the
benefit of Agent, the Lenders and LC Issuers, and neither Borrower nor any
Guarantor shall have rights as a third party beneficiary of any of such
provisions.

          10.2 Rights as a Lender. The Person serving as Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not Agent and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated or unless the context
otherwise requires, include the Person serving as Agent hereunder in its
individual capacity. Such Person and its Affiliates may accept deposits from,
lend money to, act as the financial advisor or in any other advisory capacity
for and generally engage in any kind of business with Borrower or any Subsidiary
or other Affiliate thereof as if such Person were not Agent hereunder and
without any duty to account therefor to the Lenders.

          10.3 Exculpatory Provisions. Agent shall not have any duties or
obligations except those expressly set forth herein and in the other Loan
Documents. Without limiting the generality of the foregoing, Agent:

               (a) shall not be subject to any fiduciary or other implied
duties, regardless of whether a Default or Event of Default has occurred and is
continuing;


                                       71



               (b) shall not have any duty to take any discretionary action or
exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby or by the other Loan Documents that Agent is
required to exercise as directed in writing by the Required Lenders (or such
other number or percentage of Lenders as shall be expressly provided for herein
or in the other Loan Documents), provided that Agent shall not be required to
take any action that, in its opinion or the opinion of its counsel, may expose
Agent to liability or that is contrary to any Loan Document or applicable law;
and

               (c) shall not, except as expressly set forth herein and in the
other Loan Documents, have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to Borrower or any of its
Affiliates that is communicated to or obtained by the Person serving as Agent or
any of its Affiliates in any capacity.

Agent shall not be liable for any action taken or not taken by it (i) with the
consent or at the request of the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary, or as Agent shall believe in
good faith shall be necessary, under the circumstances as provided in Sections
11.1 hereof and Article 9 hereof) or (ii) in the absence of its own gross
negligence or willful misconduct. Agent shall be deemed not to have knowledge of
any Default or Event of Default unless and until notice describing such Default
or Event of Default is given to Agent by Borrower, a Lender or LC Issuer.

          Agent shall not be responsible for or have any duty to ascertain or
inquire into (i) any statement, warranty or representation made in or in
connection with this Agreement or any other Loan Document, (ii) the contents of
any certificate, report or other document delivered hereunder or thereunder or
in connection herewith or therewith, (iii) the performance or observance of any
of the covenants, agreements or other terms or conditions set forth herein or
therein or the occurrence of any Default or Event of Default, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Loan
Document or any other agreement, instrument or document or (v) the satisfaction
of any condition set forth in Article 5 hereof or elsewhere herein, other than
to confirm receipt of items expressly required to be delivered to Agent.

          10.4 Reliance by Agent. Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
(including any electronic message, Internet or intranet website posting or other
distribution) believed by it to be genuine and to have been signed, sent or
otherwise authenticated by the proper Person. Agent also may rely upon any
statement made to it orally or by telephone and believed by it to have been made
by the proper Person, and shall not incur any liability for relying thereon. In
determining compliance with any condition hereunder to the making of a Loan, or
the issuance of a Facility L/C, that by its terms must be fulfilled to the
satisfaction of a Lender or LC Issuer, Agent may presume that such condition is
satisfactory to such Lender or LC Issuer unless Agent shall have received notice
to the contrary from such Lender or LC Issuer prior to the making of such Loan
or the issuance of such Facility L/C. Agent may consult with legal counsel (who
may be counsel for Borrower), independent accountants and other experts selected
by it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.


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          10.5 Delegation of Duties. Agent may perform any and all of its duties
and exercise its rights and powers hereunder or under any other Loan Document by
or through any one or more sub-agents appointed by Agent. Agent and any such
sub-agent may perform any and all of its duties and exercise its rights and
powers by or through their respective Related Parties. The exculpatory
provisions of this Article shall apply to any such sub-agent and to the Related
Parties of Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Agent.

          10.6 Resignation of Agent. Agent may at any time give notice of its
resignation to Lenders, LC Issuers and Borrower. Upon receipt of any such notice
of resignation, the Required Lenders shall have the right, with the consent of
Borrower unless an Event of Default has occurred and is continuing (such consent
not to be unreasonably withheld or delayed), to appoint a successor, which shall
be a bank with an office in the United States, or an Affiliate of any such bank
with an office in the United States. If no such successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent gives notice of its
resignation, then the retiring Agent may on behalf of the Lenders and LC
Issuers, appoint a successor Agent meeting the qualifications set forth above
provided that if Agent shall notify Borrower and the Lenders that no qualifying
Person has accepted such appointment, then such resignation shall nonetheless
become effective in accordance with such notice and (1) the retiring Agent shall
be discharged from its duties and obligations hereunder and under the other Loan
Documents and (2) all payments, communications and determinations provided to be
made by, to or through Agent shall instead be made by or to each Lender and LC
Issuers directly, until such time as the Required Lenders appoint a successor
Agent as provided for above in this Section. Upon the acceptance of a
successor's appointment as Agent hereunder, such successor shall succeed to and
become vested with all of the rights, powers, privileges and duties of the
retiring (or retired) Agent, and the retiring Agent shall be discharged from all
of its duties and obligations hereunder or under the other Loan Documents (if
not already discharged therefrom as provided above in this paragraph). The fees
payable by Borrower to a successor Agent shall be the same as those payable to
its predecessor unless otherwise agreed between Borrower and such successor. The
predecessor Agent shall pay to the successor the pro rata portion of any annual
administration fee paid in advance by Borrower for the portion of the year
between the time of the successor Agent's acceptance of its appointment as Agent
and the following anniversary date of this Agreement. After the retiring Agent's
resignation hereunder and under the other Loan Documents, the provisions of this
Article and Section 11.6 hereof shall continue in effect for the benefit of such
retiring Agent, its sub-agents and their respective Related Parties in respect
of any actions taken or omitted to be taken by any of them while the retiring
Agent was acting as Agent.

          10.7 Non-Reliance on Agent and Other Lenders. Each Lender and LC
Issuer acknowledges that it has, independently and without reliance upon Agent
or any other Lender or any of their Related Parties and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender and LC Issuer also
acknowledges that it will, independently and without reliance upon Agent or any
other Lender or any of their Related Parties and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not


                                       73



taking action under or based upon this Agreement, any other Loan Document or any
related agreement or any document furnished hereunder or thereunder.

          10.8 No Other Duties, etc. Anything herein to the contrary
notwithstanding, none of the Syndication Agents or Documentation Agents listed
on the cover page hereof shall have any powers, duties or responsibilities under
this Agreement or any of the other Loan Documents, except in its capacity, as
applicable, as Agent, a Lender or LC Issuer hereunder.

                            ARTICLE 11: MISCELLANEOUS

          11.1 Amendments and Waivers. Agent and Borrower may, from time to
time, with the written consent of the Required Lenders, enter into written
amendments, supplements or modifications for the purpose of adding any
provisions to this Agreement or the Notes or changing in any manner the rights
of Lenders or Borrower hereunder or thereunder, and with the consent of the
Required Lenders, Agent on behalf of Lenders may execute and deliver to Borrower
a written instrument waiving, on such terms and conditions as Agent may specify
in such instrument, any of the requirements of this Agreement, the Notes or any
Default or Event of Default and its consequences; provided, however, that no
such waiver and no such amendment, supplement or modification shall extend the
final maturity of any Note, or reduce the rate or extend the time of payment of
interest or fees thereon or hereunder, or reduce the principal amount thereof,
or change the amount or terms of any Lender's Revolving Credit Loan or Ratable
Share or the amount of any Lender's Commitment (except for (i) changes resulting
from an assignment permitted hereunder or (ii) as provided in Section 2.6(b) or
3.10 hereof), or, except as permitted hereunder, release any Guarantor from the
Guaranty Agreement to which it is a party, or amend, modify, change or waive any
provision of this Section, or reduce the percentage specified in the definition
of Required Lenders, or consent to the assignment or transfer by Borrower of any
of its rights and obligations under this Agreement, or consent to the release of
any collateral (except in connection with a sale or disposition not prohibited
hereunder), or amend, modify or change any other provision of this Agreement
that requires the consent of all Lenders, in each case without the written
consent of all Lenders; and provided, further, that no such waiver and no such
amendment, supplement or modification shall alter in any way Swingline Lender's
rights or obligations with respect to Swingline Loans without the consent of
Swingline Lender; and provided, further, that no such waiver and no such
amendment, supplement or modification shall alter in any way any LC Issuer's
rights or obligations with respect to Facility L/Cs issued by it without the
consent of such LC Issuer; and provided, further, that no such waiver and no
such amendment, supplement or modification shall amend, modify, change or waive
any provision relating to the rights or obligations of Agent without the consent
of Agent. Any such waiver and any such amendment, supplement or modification
shall be binding upon Borrower, Agent and each Lender, and all future holders of
the Notes. In the case of any waiver, Borrower, Agent and each Lender shall be
restored to their former position and rights hereunder and under the outstanding
Notes, and any Default or Event of Default waived shall be deemed to be cured
and not continuing; but no such waiver shall extend to any subsequent or other
Default or Event of Default, or impair any right consequent thereon.

          11.2 Notices. (a) Except in the case of notices and other
communications expressly permitted to be given by telephone (and except as
provided in paragraph (b) below), all


                                       74



notices and other communications provided for herein shall be in writing and
shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopier as follows:

          (i) if to Borrower or any Guarantor, to it at 1080 Holcomb Bridge
Road, Building 200, Suite 350, Roswell, Georgia, 30076, Attention of Bob Salomon
(Telecopier No. (770) 998-7494; Telephone No. (770) 998-9663), with a copy to
3751 Victoria Park Avenue, Toronto, Ontario, M1W3Z4 Canada, Attention of Seymour
Joffe (Telecopier No. (416) 449-1073; Telephone No. (416) 449-1340) and a copy
to 3751 Victoria Park Avenue, Toronto, Ontario M1W 3Z4 Canada, Attention of
Harry Rosenbaum (Telecopier No. (416) 449-1340; Telephone No. (416) 449-1340).

          (ii) if to Agent, to Wachovia Bank, National Association, at One
Wachovia Center, 401 South Tryon Street NC1193, Charlotte, North Carolina
28288, Attention of Scott Holtzapple (Telecopier No. (704) 383-7146; Telephone
No. (704) 383-0474);

          (iii) if to an LC Issuer, to it at its address (or telecopier number)
set forth in its Administrative Questionnaire; and

          (iv) if to a Lender, to it at its address (or telecopier number) set
forth in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or
registered mail, shall be deemed to have been given when received; notices sent
by telecopier shall be deemed to have been given when sent (except that, if not
given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the
recipient). Notices delivered through electronic communications to the extent
provided in paragraph (b) below, shall be effective as provided in said
paragraph (b).

          (b) Notices and other communications to Lenders and LC Issuers
hereunder may be delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures approved by
Agent, provided that the foregoing shall not apply to notices to any Lender or
LC Issuer pursuant to Article 2 if such Lender or LC Issuer, as applicable, has
notified Agent that it is incapable of receiving notices under such Article by
electronic communication. Agent or Borrower may, in its discretion, agree to
accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it, provided that approval of
such procedures may be limited to particular notices or communications.

          Unless Agent otherwise prescribes, (i) notices and other
communications sent to an e-mail address shall be deemed received upon the
sender's receipt of an acknowledgement from the intended recipient (such as by
the "return receipt requested" function, as available, return e-mail or other
written acknowledgement), provided that if such notice or other communication is
not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on
the next business day for the recipient, and (ii) notices or communications
posted to an Internet or intranet website shall be deemed received upon the
deemed receipt by the intended recipient at its e-mail


                                       75



address as described in the foregoing clause (i) of notification that such
notice or communication is available and identifying the website address
therefor.

          (c) Any party hereto may change its address or telecopier number for
notices and other communications hereunder by notice to the other parties
hereto.

          11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of Agent or any Lender, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and, except for rights the exercise of which
require consent of the Required Lenders or all Lenders, as appropriate, under
this Agreement, not exclusive of any rights, remedies, powers and privileges
provided by law.

          11.4 Governmental Regulation. Anything contained in this Agreement to
the contrary notwithstanding, no Lender shall be obligated to extend credit to
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.

          11.5 Survival of Representations and Warranties. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the Notes and shall remain in full force and
effect until this Agreement is terminated, all Facility L/Cs are cancelled or
are fully collateralized with cash in accordance with Article 8 hereof and all
Obligations (including Facility L/C Obligations that are not fully
collateralized with cash, but excluding unmatured indemnity obligations) are
paid in full.

          11.6 Costs and Expenses; Indemnification; Reimbursement; Waiver of
Damages. (a) Borrower shall pay (i) all reasonable out-of-pocket expenses
incurred by Agent and its Affiliates (including the reasonable fees, charges and
disbursements of counsel for Agent), in connection with the syndication of the
credit facilities provided for herein, the preparation, negotiation, execution,
delivery and administration of this Agreement and the other Loan Documents or
any amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out-of-pocket expenses incurred by any LC
Issuer in connection with the issuance, amendment, renewal or extension of any
Facility L/C or any demand for payment thereunder, (iii) all out-of-pocket
expenses incurred by Agent, any Lender or any LC Issuer (including the fees,
charges and disbursements of any counsel for Agent, any Lender or any LC
Issuer), in connection with the enforcement or protection of its rights (A) in
connection with this Agreement and the other Loan Documents, including its
rights under this Section, or (B) in connection with the Loans made or Facility
L/Cs issued hereunder, including all such out-of-pocket expenses incurred during
any workout, restructuring or negotiations in respect of such Loans or Facility
L/Cs, and (iv) any civil penalty or fine assessed by the U.S. Department of the
Treasury's Office of Foreign Assets Control against, and all reasonable costs
and expenses (including counsel fees and disbursements) incurred in connection
with defense thereof by Agent, any Lender or any LC Issuer as a result of the
funding of Loans, the issuance of Facility L/Cs or the acceptance of payments
due under the Loan Agreement.


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          (b) Borrower shall indemnify Agent (and any sub-agent thereof), each
Lender and LC Issuer, and each Related Party of any of the foregoing Persons
(each such Person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses (including the fees, charges and disbursements of any counsel
for any Indemnitee), incurred by any Indemnitee or asserted against any
Indemnitee by any third party or by Borrower or any Guarantor arising out of, in
connection with, or as a result of (i) the execution or delivery of this
Agreement, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto of their respective
obligations hereunder or thereunder or the consummation of the transactions
contemplated hereby or thereby, (ii) any Loan or Facility L/C or the use or
proposed use of the proceeds therefrom (including any refusal by any LC Issuer
to honor a demand for payment under a Facility L/C if the documents presented in
connection with such demand do not strictly comply with the terms of such
Facility L/C), (iii) any actual or alleged Hazardous Discharge on or from any
property owned or operated by Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to Borrower or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory, whether brought by a third party or by Borrower or any
Guarantor, and regardless of whether any Indemnitee is a party thereto, provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses (x) are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee or (y) result from a claim brought by Borrower or any Guarantor
against an Indemnitee for breach in bad faith of such Indemnitee's obligations
hereunder or under any other Loan Document, if Borrower or such Guarantor has
obtained a final and nonappealable judgment in its favor on such claim as
determined by a court of competent jurisdiction.

          (c) To the extent that Borrower for any reason fails to indefeasibly
pay any amount required under paragraph (a) or (b) of this Section to be paid by
it to Agent (or any sub-agent thereof), any LC Issuer or any Related Party of
any of the foregoing, each Lender severally agrees to pay to Agent (or any such
sub-agent), such LC Issuer or such Related Party, as the case may be, such
Lender's Ratable Share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount,
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against Agent (or any such sub-agent) or such LC Issuer in its capacity as such,
or against any Related Party of any of the foregoing acting for Agent (or any
such sub-agent) or such LC Issuer in connection with such capacity. The
obligations of the Lenders under this paragraph (c) are several and not joint or
joint and several.

          (d) To the fullest extent permitted by applicable law, Borrower shall
not assert, and hereby waives, any claim against any Indemnitee, on any theory
of liability, for special, indirect, consequential or punitive damages (as
opposed to direct or actual damages) arising out of, in connection with, or as a
result of, this Agreement, any other Loan Document or any agreement or
instrument contemplated hereby, the transactions contemplated hereby or thereby,
any Loan or Facility L/C or the use of the proceeds thereof. No Indemnitee
referred to in paragraph (b) above shall be liable for any damages arising from
the use by unintended


                                       77



recipients of any information or other materials distributed by it through
telecommunications, electronic or other information transmission systems in
connection with this Agreement or the other Loan Documents or the transactions
contemplated hereby or thereby.

          (e) All amounts due under this Section shall be payable not later than
ten (10) days after demand therefor.

          11.7 Successors and Assigns Generally; Assignments. (a) The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns permitted hereby, except that
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of Agent and each Lender and no
Lender may assign or otherwise transfer any of its rights or obligations
hereunder except (i) to an assignee in accordance with the provisions of
paragraph (b) of this Section, (ii) by way of participation in accordance with
the provisions of paragraph (d) of this Section or (iii) by way of pledge or
assignment of a security interest subject to the restrictions of paragraph (f)
of this Section (and any other attempted assignment or transfer by any party
hereto shall be null and void). Nothing in this Agreement, expressed or implied,
shall be construed to confer upon any Person (other than the parties hereto,
their respective successors and assigns permitted hereby, Participants to the
extent provided in paragraph (d) of this Section and, to the extent expressly
contemplated hereby, the Related Parties of each of Agent and Lenders) any legal
or equitable right, remedy or claim under or by reason of this Agreement.

          (b) Any Lender may at any time assign to one or more assignees all or
a portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
any such assignment shall be subject to the following conditions:

               (i) in the case of an assignment of the entire remaining amount
of the assigning Lender's Commitment and the Loans at the time owing to it or in
the case of an assignment to a Lender, an Affiliate of a Lender or an Approved
Fund, no minimum amount need be assigned;

               (ii) in any case not described in paragraph (b)(i) of this
Section, the aggregate amount of the Commitment (which for this purpose includes
Loans outstanding thereunder) or, if the applicable Commitment is not then in
effect, the principal outstanding balance of the Loans of the assigning and
assignee Lender subject to each such assignment (determined as of the date the
Assignment and Assumption with respect to such assignment is delivered to the
Agent or, if "Trade Date" is specified in the Assignment and Assumption, as of
the Trade Date) shall not be less than $10,000,000, unless each of the Agent
and, so long as no Event of Default has occurred and is continuing, the Borrower
otherwise consent (each such consent not to be unreasonably withheld or
delayed);

               (iii) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations under
this Agreement with respect to the Loan or the Commitment assigned;


                                       78



               (iv) no consent shall be required for any assignment except to
the extent required by paragraph (b)(i) of this Section and, in addition:

               (A) the consent of the Borrower (such consent not to be
          unreasonably withheld or delayed; provided that it shall not be
          unreasonable for Borrower to decline to consent to an assignment to a
          Person who is not an Eligible Investor) shall be required unless (x)
          an Event of Default has occurred and is continuing at the time of such
          assignment or (y) such assignment is to a Lender, an Affiliate of a
          Lender or an Approved Fund;

               (B) the consent of the Agent (such consent not to be unreasonably
          withheld or delayed) shall be required if such assignment is to a
          Person that is not a Lender with a Commitment, an Affiliate of such
          Lender or an Approved Fund with respect to such Lender; and

               (C) the consent of the Swingline Lender (such consent not to be
          unreasonably withheld or delayed) shall be required for any assignment
          in respect of the revolving facility.

               (v) the parties to each assignment shall execute and deliver to
Agent an Assignment and Assumption, together with a processing and recordation
fee of $3,500 for each assignment, and the assignee, if it is not a Lender,
shall deliver to Agent an Administrative Questionnaire;

               (vi) no such assignment shall be made to the Borrower or any of
the Borrower's Affiliates or Subsidiaries; and

               (vii) no such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by Agent pursuant to paragraph (c)
of this Section, from and after the effective date specified in each Assignment
and Assumption, the assignee thereunder shall be a party to this Agreement and,
to the extent of the interest assigned by such Assignment and Assumption, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this Agreement
(and, in the case of an Assignment and Assumption covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto) but shall continue to be entitled to the benefits of Sections
2.9, 3.5, 3.6 and 11.6 hereof with respect to facts and circumstances occurring
prior to the effective date of such assignment. Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (d) of this Section.

          (c) Agent, acting solely for this purpose as an agent of Borrower,
shall maintain at its office in Charlotte, North Carolina, a copy of each
Assignment and Assumption delivered to it and a register for the recordation of
the names and addresses of Lenders, and the Commitments of, and principal
amounts of the Loans owing to, each Lender pursuant to the


                                       79



terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive, and Borrower, Agent and Lenders may treat each Person whose
name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by Borrower and any
Lender, at any reasonable time and from time to time upon reasonable prior
notice.

          (d) Any Lender may at any time, without the consent of, or notice to,
Borrower or Agent, sell participations to any Person (other than a natural
person or the Borrower or any of Borrower's Affiliates or Subsidiaries) (each, a
"Participant") in all or a portion of such Lender's rights and/or obligations
under this Agreement (including all or a portion of its Commitment and/or the
Loans owing to it); provided that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iii) Borrower, Agent and Lenders and LC Issuers shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement.

          Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of Participant, agree to
any amendment, modification or waiver described in Section 11.1 hereof that
requires the consent of all Lenders, that affects such Participant. Subject to
paragraph (e) of this Section, Borrower agrees that each Participant shall be
entitled to the benefits of Sections 2.9, 3.5 and 3.6 hereof to the same extent
as if it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section. To the extent permitted by law, each Participant
also shall be entitled to the benefits of Section 11.8(a) hereof as though it
were a Lender, provided such Participant agrees to be subject to Section 11.8
(b) hereof as though it were a Lender.

          (e) A Participant shall not be entitled to receive any greater payment
under Sections 2.9, 3.5 or 3.6 hereof than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with Borrower's
prior written consent. A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of Section 3.6 hereof unless
Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of Borrower, to comply with Section 3.6
hereof as though it were a Lender.

          (f) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank; provided that no such pledge or assignment shall release
such Lender from any of its obligations hereunder or substitute any such pledgee
or assignee for such Lender as a party hereto.


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          11.8 Setoff. Sharing of Payments by Lenders.

               (a) If an Event of Default shall have occurred and be continuing,
each Lender, each LC Issuer, and each of their respective Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
applicable law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final, in whatever currency) at any time held and
other obligations (in whatever currency) at any time owing by such Lender, LC
Issuer or any such Affiliate to or for the credit or the account of Borrower
against any and all of the obligations of Borrower now or hereafter existing
under this Agreement or any other Loan Document to such Lender or LC Issuer,
irrespective of whether or not such Lender or LC Issuer shall have made any
demand under this Agreement or any other Loan Document and although such
obligations of Borrower may be contingent or unmatured or are owed to a branch
or office of such Lender or LC Issuer different from the branch or office
holding such deposit or obligated on such indebtedness. The rights of each
Lender, LC Issuer and their respective Affiliates under this Section are in
addition to other rights and remedies (including other rights of setoff) that
such Lender, LC Issuer or their respective Affiliates may have. Each Lender and
LC Issuer agrees to notify Borrower and Agent promptly after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such setoff and application.

               (b) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans or other obligations hereunder resulting in such
Lender's receiving payment of a proportion of the aggregate amount of its Loans
and accrued interest thereon or other such obligations greater than its pro rata
share thereof as provided herein, then the Lender receiving such greater
proportion shall (a) notify Agent of such fact, and (b) purchase (for cash at
face value) participations in the Loans and such other obligations of other
Lenders, or make such other adjustments as shall be equitable, so that the
benefit of all such payments shall be shared by Lenders ratably in accordance
with the aggregate amount of principal of and accrued interest on their
respective Loans and other amounts owing them, provided that:

               (i) if any such participations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations
shall be rescinded and the purchase price restored to the extent of such
recovery, without interest; and

               (ii) the provisions of this paragraph shall not be construed to
apply to (x) any payment made by Borrower pursuant to and in accordance with the
express terms of this Agreement or (y) any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans or participations in Facility L/C Obligations to any assignee or
participant, other than to Borrower or any Subsidiary thereof (as to which the
provisions of this paragraph shall apply).

Borrower consents to the foregoing and agrees, to the extent it may effectively
do so under applicable law, that any Lender acquiring a participation pursuant
to the foregoing arrangements may exercise against Borrower rights of setoff and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of Borrower in the amount of such participation.


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          11.9 Waiver Of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

          11.10 Treatment of Certain Information; Confidentiality. Each of
Agent, Lenders and LC Issuers agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its Affiliates and to its and its Affiliates' respective partners, directors,
officers, employees, agents, advisors and other representatives who are directly
involved in the consideration of the matters contemplated by the Loan Documents
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information by accepting such
Information automatically agree to keep such Information confidential), (b) to
the extent requested by any regulatory authority purporting to have jurisdiction
over it (including any self-regulatory authority, such as the National
Association of Insurance Commissioners), (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party hereto, (e) in connection with the exercise of any remedies
hereunder or under any other Loan Document or any action or proceeding relating
to this Agreement or any other Loan Document or the enforcement of rights
hereunder or thereunder, (f) with the prior written consent of Borrower and
subject to an agreement containing provisions substantially the same as those of
this Section, to (i) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement or (ii) any actual or prospective counterparty (or its advisors) to
any swap or derivative transaction relating to Borrower and its obligations, (g)
with the consent of Borrower or (h) to the extent such Information (x) becomes
publicly available other than as a result of a breach of this Section or (y)
becomes available to Agent, any Lender, any LC Issuer or any of their respective
Affiliates on a nonconfidential basis from a source other than Borrower.
Notwithstanding the foregoing, Agent or any Lender may disclose Information,
without notice to Borrower, to governmental regulatory authorities in connection
with any regulatory examination of Agent or such Lender or in accordance with
Agent's or such Lender's regulatory compliance policy, if Agent or such Lender
deems necessary for the mitigation of claims by those authorities against Agent
or such Lender or any of its subsidiaries or Affiliates.

          For purposes of this Section, "Information" means all information
received from Borrower or any of its Subsidiaries relating to Borrower or any of
its Subsidiaries or any of their respective businesses, other than any such
information that is available to Agent, any Lender or any LC Issuer on a
nonconfidential basis prior to disclosure by Borrower or any of its
Subsidiaries. Any Person required to maintain the confidentiality of Information
as provided in


                                       82



this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.

          11.11 Counterparts; Integration; Effectiveness. (a) This Agreement may
be executed in counterparts (and by different parties hereto in different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and the other
Loan Documents, and any separate letter agreements with respect to fees payable
to Agent, constitute the entire contract among the parties relating to the
subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Article 5, this Agreement shall become effective when it shall
have been executed by Agent and when Agent shall have received counterparts
hereof that, when taken together, bear the signatures of each of the other
parties hereto. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.

               (b) The words "execution," "signed," "signature," and words of
like import in any Assignment and Assumption shall be deemed to include
electronic signatures or the keeping of records in electronic form, each of
which shall be of the same legal effect, validity or enforceability as a
manually executed signature or the use of a paper-based recordkeeping system, as
the case may be, to the extent and as provided for in any applicable law,
including the Federal Electronic Signatures in Global and National Commerce Act,
the New York State Electronic Signatures and Records Act, or any other similar
state laws based on the Uniform Electronic Transactions Act.

          11.12 Governing Law. This Agreement, the Notes and the rights and
obligations of the parties under this Agreement and the Notes shall be governed
by, and construed and in accordance with, the law of the State of North
Carolina.

          11.13 Severability of Provisions. Any provision of any Loan Document
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.

          11.14 Submission to Jurisdiction; Waiver of Venue; Service of Process

               (a) BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF
AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NORTH CAROLINA SITTING IN MECKLENBURG COUNTY AND OF THE UNITED STATES DISTRICT
COURT OF THE WESTERN DISTRICT OF NORTH CAROLINA AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN


                                       83



SUCH NORTH CAROLINA STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL
AFFECT ANY RIGHT THAT AGENT, ANY LENDER OR LC ISSUER MAY OTHERWISE HAVE TO BRING
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
AGAINST BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

               (b) BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED
TO IN PARAGRAPH (a) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.

               (c) EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS
IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.2 HEREOF. NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW.

          11.15 Headings. The headings of the Articles and Sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.

          11.16 FIN 46. For purposes of determining compliance with the
financial covenants in this Agreement and for purposes of making the financial
calculations required by this Agreement, notwithstanding anything herein to the
contrary, the application of Financial Accounting Standards Board Interpretation
No. 46 shall be disregarded with respect to financial consolidation of any
entity that is not a Subsidiary of Borrower.

          11.17 USA Patriot Act. Each Lender that is subject to the requirements
of the USA Patriot Act (Title III of Pub. L. 107-56) (signed into law October
26, 2001)) (the "Act") hereby notifies Borrower that pursuant to the
requirements of the Act, it is required to obtain, verify and record information
that identifies Borrower, which information includes the name and address of
Borrower and other information that will allow such Lender to identify Borrower
in accordance with the Act.

          11.18 Interrelationship with the Existing Credit Agreement. As stated
in the preamble hereof, this Agreement is intended to amend and restate the
provisions of the Existing Credit Agreement and, except as expressly modified
herein, (x) all of the terms and provisions of the Existing Credit Agreement
shall continue to apply for the period prior to the date of this


                                       84



Agreement, including any determinations of payment dates, interest rates, Events
of Default or any amount that may be payable to Agent or the Lenders, (y) the
Obligations under the Existing Credit Agreement shall continue to be paid or
prepaid on or prior to the date hereof in accordance with the Existing Credit
Agreement, and shall from and after the date hereof continue to be owing and be
subject to the terms of this Agreement and (z) this Agreement shall not be
deemed to evidence or result in a novation or repayment of the Loans and
reborrowing hereunder, but obligations under the Existing Credit Agreement shall
in all respects be continuing as Obligations under this Agreement.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]


                                       85



          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.

                                        BORROWER:

                                        ASHTON WOODS USA L.L.C.,
                                        a Nevada limited liability company


                                        By:
                                            ------------------------------------
                                        Name: Robert Salomon
                                        Title: Chief Financial Officer,
                                               Treasurer and Secretary



                                        AGENT:

                                        WACHOVIA BANK, NATIONAL ASSOCIATION


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        SYNDICATION AGENT:

                                        BANK OF AMERICA, N.A.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        DOCUMENTATION AGENT:

                                        CITIBANK TEXAS, N.A.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        LENDERS:

                                        WACHOVIA BANK, NATIONAL ASSOCIATION,
                                        as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        BANK OF AMERICA, N.A., as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        CITIBANK TEXAS, N.A., as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        AMSOUTH BANK, as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        GUARANTY BANK, as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------


                                        COMERICA BANK, as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        KEY BANK, NATIONAL ASSOCIATION,
                                        as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        U.S. BANK NATIONAL ASSOCIATION,
                                        as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                                        NATIONAL CITY BANK, as a Lender


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------

EX-10.7

Exhibit 10.7 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is entered into as of the 30th day of January, 2006, and deemed effective as of June 1, 2005, by and between Ashton Woods USA, LLC, a Nevada limited liability company (the "Company") and Tom Krobot ("Executive"), an individual resident in the State of Georgia. WITNESSETH: WHEREAS, Executive is currently employed by the Company as its President and Chief Executive Officer; WHEREAS, Executive and the Company have agreed upon certain terms of continued employment for a period of five years, including terms relating to severance and certain incentive payments related to specified events with respect to the Company; and WHEREAS, Executive and the Company wish to reflect such agreements in writing as set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the Company and Executive hereby agree as follows: 1. Employment. 1.1 Employment and Duties. The Company hereby agrees to continue to employ Executive for the Term (as hereinafter defined) as its President and Chief Executive Officer, subject to the direction of the Board of Directors (the "Board") of the Company and, in connection therewith, to perform such duties as he shall reasonably be directed by the Board to perform and as are normal and customary for such title and position. In performing such duties hereunder, Executive shall comply with the policies and procedures as adopted from time to time by the Board, shall give the Company the benefit of his special knowledge, skills, contacts and business experience, shall perform his duties and carry out his responsibilities hereunder in a diligent manner, and shall devote all of his business time, attention, ability and energy exclusively to the performance of his duties and responsibilities hereunder; provided, however, that Executive may, with the approval of the Board from time to time, serve, or continue to serve, on the board of directors of, and hold any other offices or positions in, companies or organizations, which, in the such officer's reasonable judgment, will not present any conflict of interest with the Company or any of its affiliates or divisions, or materially adversely affect the performance of Executive's duties pursuant to this Agreement. Executive hereby accepts such continued employment and agrees to render such services. 2. Employment Term. 2.1 Term. The term of Executive's employment hereunder (the "Term") shall commence effective as of the date hereof and shall end on May 31, 2010; provided that upon payment of the incentive award set forth in Section 3.2, this Agreement shall terminate and Executive's employment shall continue as an employee at will. Upon expiration of the Term, Executive's employment with the Company shall be as an employee at will, subject to the employment policies and practices of the Company, unless otherwise agreed by the Company and Executive. 3. Compensation and Benefits. 3.1 Cash Compensation. (1) Base Salary. In consideration of Executive's services hereunder the Company shall pay Executive an aggregate base salary at an annualized rate, effective as of the date hereof of $225,000, payable, in each case, in such nearly equal installments as may be customary for executive officers employed by the Company (but not less frequently than monthly) or as may otherwise be agreed to between the Company and Executive, in arrears (the "Base Salary"). The Base Salary for each year shall be prorated according to the number of days in such year during which this Agreement is in effect. (2) Bonuses. Executive shall receive an annual bonus equal to four percent (4.0%) of the first $10,000,000, and three percent (3.0%) of any amount in excess of $10,000,000, of the Company's annual net income calculated in accordance with generally accepted accounting principles and as reflected in the annual audited financial statements of the Company, as adjusted to exclude imputed interest on equity and bonuses paid at the operational level and specific projects as agreed to from time to time. Such bonus will be paid within four months following the end of the Company's fiscal year. 3.2 Incentive Reward Program. Executive shall be entitled to an incentive bonus upon the sale of the Company (whether in the form of (i) a sale of all or substantially all of the Company's assets, (ii) a merger or combination of the Company with any other entity pursuant to which a majority of the outstanding equity of the Company is owned following such transaction by a person or persons who prior to such transaction had no equity ownership in the Company or (iii) any other such transaction resulting in a similar change of control (a "Sale of the Company")), or upon consummation of an initial public offering of equity of the Company (an "IPO"). Such incentive bonus payment shall be due and owing to Executive upon consummation of any such Sale of the Company or IPO irrespective of Executive's continued employment by the Company subsequent to such triggering event. (1) Upon a Sale of the Company, effective as of the closing of such transaction, Executive shall receive an amount equal to three percent (3%) of the excess 2 of the aggregate price paid by the buyer or buyers in such Sale of the Company over the book value of the Company (as determined in good faith by the Board (the "Book Value")) at the time of such sale; provided that such payment shall be equal to at least a minimum of $3,000,000. Such payment shall be made to Executive in the same manner at the same time that the sale proceeds are paid to the equity owners of the Company. (2) If the Company engages in an IPO, upon the closing of the IPO, Executive shall be entitled to a payment equal to three percent (3%) of the amount by which the aggregate market value of the Company at such time, based on the valuation applied in the IPO, exceeds the then Book Value, subject to a minimum payment of $3,000,000. If possible, such payment will be made by issuance to Executive of equity stock in the Company with an aggregate value equal to the amount of the payment owed, otherwise, such payment shall be made in cash or some other mutually agreed upon method. 3.3 Participation in Benefit Plans. The payments provided in Section 3 hereof are in addition to any benefits to which Executive may be, or may become, entitled under any benefit plan or program of the Company for which key executives are or shall become eligible, including, without limitation, pension, 401(k), life and disability insurance benefits and/or plans. Further, Executive shall be eligible to receive during the period of his/her employment under this Agreement, all benefits for which executives are eligible under every such plan or program to the extent permissible under the general terms and provisions of such plans or programs and in accordance with the provisions thereof. 3.4 Vacation. Executive shall be subject to the Company's vacation policy in force from time to time. Vacation may be taken at times which do not unreasonably interfere with the performance of Executive's duties hereunder. 3.5 Health Insurance. During the term of this Agreement and continuing until Executive reaches the age of 65 on February 26, 2012, Executive and Executive's spouse shall be entitled to participate in the health insurance plan of the Company then provided to employees, whether or not Executive is then employed by the Company, irrespective of the reason for termination, including voluntary retirement. Following Executive's employment with the Company, Executive and Executive's spouse will remain eligible for coverage by such then in effect health insurance plan of the Company on the same terms as if Executive had remained an active employee of the Company. Executive's contribution toward the cost of such health coverage shall be the same as such contribution would be if Executive remained in the employ of the Company. In the event of any sale or merger of the Company or other transaction resulting in a change of control of the Company, as a condition to the Company's consummation of such transaction, the Company shall require that the acquiring entity provide health insurance coverage to Executive and Executive's spouse on the same terms as provided to its then active employees until February 26, 2012 on terms substantially similar to those set forth in this Section 3.5. 3 4. Termination. 4.1 General. The Company shall have the right to terminate the employment of Executive as set forth in this Section 4. 4.2 Termination for Cause. In addition to any other remedies which the Company may have at law or in equity, the Company may immediately terminate Executive's employment under this Agreement by giving Executive written notice of such termination upon or at any time following the good-faith determination by the Company's Board that any of the following events has occurred, and each such termination shall constitute a termination for "cause": (1) Executive acted dishonestly or engaged in willful misconduct in the performance of his duties; (2) Executive breached a fiduciary duty for personal profit; (3) Executive intentionally failed to perform reasonably assigned duties; (4) Executive willfully violated any law, rule or regulation (other than traffic violations or similar offenses); or (5) Executive was grossly negligent in the performance of duties. Upon the early termination of Executive's employment under this Agreement by the Company for "cause" the Company shall pay to Executive (i) an amount equal to Executive's Base Salary accrued through the effective date of termination at the rate in effect at the time notice of termination is given; and (ii) for each completed year of employment with the Company from June 1, 2005 to May 31, 2009, a payment of $400,000 and for a completed year of employment for June 1, 2009 to May 31, 2010, a payment of $1,400,000; and, upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement. Such amounts shall be paid within 90 days of termination. 4.3 Death or Disability of Executive. This Agreement shall automatically terminate upon the death of Executive and subject to applicable law, if Executive shall become ill or be injured or otherwise become disabled or incapacitated such that, in the opinion of the Board, he cannot fully carry out and perform his duties hereunder, and such disability or incapacity shall constitute permanent disability under the Company's policies and practices, the Board may, at any time thereafter, by giving Executive prior written notice, fully and finally terminate his employment under this Agreement. Upon the early termination of this Agreement as a result of death or disability, the Company shall pay Executive's estate or Executive, as the case may be: (i) an amount equal to Executive's Base 4 Salary accrued through the effective date of termination at the rate in effect at the effective date of termination; (ii) an amount equal to the greater of: (A) $3,000,000 or (B) a prorated portion (based on the portion of the term of this Agreement that has expired divided by five years) of three percent (3%) of the excess of the public market value of the Company (based on the good-faith determination of the Board of what an IPO of Company would yield as the market value of the Company at such time ("Public Market Value")) over the Book Value of the Company at the time of death or permanent disability; and (iii) any amounts to which Executive is entitled under any other benefit plan of the Company, in each case at the time such payments would by their terms become due any payable, and the Company shall have no further obligations to Executive under this Agreement. Payment will be made within 60 days of termination of the amount set forth in clause (i) and, of the amount set forth in clause (ii), $400,000 for each completed year of service with the Company from June 1, 2005 to May 31, 2009 and $1,400,000 for a completed year of employment for June 1, 2009 to May 31, 2010, with the remainder of the amount specified in clause (ii) to be paid within 12 months of termination. Payment of any amounts owed under any other benefit plan will occur pursuant to the timing set forth therein. 4.4 Termination Without Cause. Executive's employment under this Agreement may be terminated without cause by giving Executive written notice thereof, effective as of the date provided in such notice. Upon such termination of the employment of Executive, the Company shall pay to Executive: (i) an amount equal to Executive's Base Salary accrued through the effective date of termination at the rate in effect at the effective date of termination; (ii) an amount equal to the greater of: (A) an amount equal to the sum of one year's Base Salary at the rate in effect at the effective date of termination plus a bonus payable pursuant to Section 3.1(2) hereof based on projections for the Company's net income for the following 12 months plus an amount equal to a bonus calculated in accordance with Section 3.1(2) hereof based on a pro rata share of net income for the current fiscal year to the date of termination, or (B) an amount equal to the sum of a bonus calculated in accordance with Section 3.1(2) hereof pro rated based on net income for the current fiscal year through the date of termination plus three percent (3.0%) of the excess of the Public Market Value of the Company over Book Value subject to a minimum of $3,000,000. Such amounts would be payable within 60 days of the date of termination and upon such payments, the Company shall have no further obligations to Executive under this Agreement. 4.5 Termination by Executive. Executive may, with or without cause, terminate his employment under this Agreement by giving the Company at least six (6) months' prior written notice of such termination. Upon such termination of employment by Executive, the Company shall pay to Executive: (i) an amount equal to Executive's base salary accrued through the effective date of termination at the rate in effect at the effective date of termination; and (ii) for each completed year of service with the Company from June 1, 2005 to May 31, 2009, a payment of $400,000 and for a completed year of employment for June 1, 2009 to May 31, 2010, a payment of $1,400,000 and upon payment of such amounts, 5 the Company shall have no further obligation to Executive under this Agreement. Such payments will be made in four (4) equal annual installments, beginning within thirty (30) days after the effective date of termination, and will not bear interest. 4.6 Termination of Employment Upon Expiration of this Agreement. If the parties agree to the termination of Executive's employment upon the expiration of the Term of this Agreement, Executive will be entitled to a payment equal to three percent (3%) of the excess of the Public Market Value of the Company over the Book Value subject to a minimum payment of $3,000,000. Such payment shall be made within 30 days of the date of termination of this Agreement and upon such payment the Company shall have no further obligation to Executive under this Agreement. 4.7 Termination of Employment Upon Sale of the Company. If Executive's employment is not continued with the Company following consummation of a Sale of the Company as defined in Section 3.2 hereof, in addition to the amounts specified in Section 3.2, Executive shall receive an amount equal to (i) Executive's base salary accrued to the effective date of termination at the rate in effect at the effective date of termination; and (ii) an amount equal to a bonus calculated in accordance with Section 3.1(2) hereof based on a pro rated share of net income for the current fiscal year to the date of termination. Such amount will be payable at the same time payment is made pursuant to Section 3.2 hereof. 5. Non-Solicitation/Interference Covenant 5.1 Covenant. During Executive's employment hereunder and for a period of two years following termination of Executive's employment with the Company for any reason, Executive will not for his own account or for any other person or entity, (i) solicit, employ or otherwise engage as an employee, independent contractor, or otherwise, any person who is an employee of the Company or any of its subsidiaries or affiliates; (ii) in an manner attempt or actually induce, any person who is an employee of the Company or any of its subsidiaries or affiliates to terminate his or her employment; or (iii) interfere with the relationship of the Company or any of its subsidiaries or affiliates with any person or entity that, at any time during Executive's employment with the Company was an employee, supplier, contractor, customer, partner or joint-venturer of the Company or any of its subsidiaries or affiliates. 5.2 Breach. Executive hereby recognizes and acknowledges that irreparable injury or damage shall result to the Company in the event of a breach or threatened breach by Executive of any of the terms or provisions of this Section 5, and Executive therefore agrees that the Company shall be entitled to an injunction restraining Executive from engaging in any activity constituting such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company at law or in equity for such breach or threatened breach, including but not limited to, the recovery of damages from Executive and, if 6 Executive is an employee of the Company, the termination of his employment with the Company in accordance with the terms and provisions of this Agreement. 5.3 Survival. Notwithstanding the termination of the employment of Executive or the termination of this Agreement, the provisions of this Section 5 shall survive and be binding upon Executive unless a written agreement which specifically refers to the termination of the obligations and covenants of this Section 5 is executed by the Company. 6. Successors; Assigns. 6.1 This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representatives. 6.2 The Company shall have the right to assign this Agreement and to delegate all of its rights, duties and obligations hereunder to any entity which controls the Company or which may be the result of the merger, consolidation, acquisition or reorganization of the Company and another entity. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 6.3 The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform Section 3.5 of this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 7. Miscellaneous. 7.1 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF. 7.2 Any notices to be given hereunder by either party to the other may be effected by personal delivery in writing, via facsimile transmission or by mail, registered or certified, postage prepaid with return receipt requested. Notices shall be addressed to the parties as follows: 7 If to the Company: Ashton Woods USA, LLC 1080 Holcomb Bridge Road Building 200, Suite 358 Roswell, GA 30076 Attn: Robert Salomon Facsimile: (770) 998-7494 If to Executive: Tom Krobot <

> <> Any party may change his or its address by written notice in accordance with this Section 7.2. Notices delivered personally shall be deemed communicated as of actual receipt; notices sent via facsimile transmission shall be deemed communicated as of receipt by the sender of written confirmation of transmission thereof; mailed notices shall be deemed communicated as of three (3) days after proper mailing. 7.3 This Agreement supersedes any and all other prior or contemporaneous agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof and this Agreement contains all of the covenants and agreements between the parties with respect to employment of Executive by the Company. 7.4 The failure of Executive or the Company to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 7.5 Except as otherwise provided in Section 7.6 hereof, no amendment or modification of this Agreement shall be deemed effective unless and until executed in writing by each party hereto. 7.6 All agreements and covenants contained herein are severable and in the event any of them shall be held to be invalid by any competent court, this Agreement shall be interpreted as if such invalid agreements or covenants were not contained herein. Should any court or other legally constituted authority determine that for any such agreement or covenant to be effective that it must be modified to limit its duration or scope, the parties hereto shall consider such agreement or covenant to be amended or modified with respect to duration and/or scope so as to comply with the orders of any such court or other legally constituted authority, and as to all other portions of such agreement or covenants they shall remain in full force and effect as originally written. 8 7.7 All headings set forth in this Agreement are intended for convenience only and shall not control or affect the meaning, construction or effect of this Agreement or of any of the provisions hereof. 7.8 This Agreement may be executed via facsimile transmission signature and in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 7.9 All matters to be determined by the Board pursuant to the terms of this Agreement shall be determined by the members of the Board or any duly authorized committee thereof. 7.10 The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. All payments made pursuant to this Agreement shall be structured in a manner to maximize tax and accounting planning for the Company. 7.11 To the extent that any payments under Section 3.2 or Section 4.7 of this Agreement will be deemed to be "excess parachute payments" under Section 280G and related provisions of the Internal Revenue Code and the regulations promulgated thereunder, as determined in good faith by the Company's counsel or independent auditors, such "excess parachute payments" will not be due and payable to the Executive until such payments have been approved by the Company's equity holders. 9 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first written above. ---------------------------------------- Tom Krobot ASHTON WOODS USA, LLC ---------------------------------------- By: ------------------------------------ Its: ----------------------------------- EX-10.8 9 g97582a1exv10w8.txt EX-10.8 AGREEMENT OF LIMITED LIABILITY Exhibit 10.8 AGREEMENT OF LIMITED LIABILITY COMPANY OF ASHTON WOODS MORTGAGE, LLC This Agreement of Limited Liability Company (the "Agreement"), is entered into September 23, 200? and between Wells Fargo Ventures, LLC, with its principal place of business at 1 Home Campus, Des Moines, Iowa 50328-0001, ("Wells Fargo Member") and Ashton Woods USA, LLC, with its principal place of business at 1405 Old Alabama Road, Suite 120, Roswell, GA 30076, ("Marketing Member") who do hereby form the limited liability company agreement of Ashton Woods Mortgage, LLC (the "Company"), pursuant to the Delaware Limited Liability Company Act, upon the following terms and conditions: ARTICLE I Definitions and Glossary of Terms Section 1.1 Definitions. The following terms used in the Agreement shall have (unless otherwise expressly provided herein or unless the context otherwise requires) the following respective meanings: "Accountants" means KPMG, LLP, or such other certified public accountants as the Operating Committee may select, "Act" shall mean the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101 through Section 18-1107, as amended from time to time. "Affiliate" means any person or entity that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person or entity specified. "Agreement" shall mean this Agreement of Limited Liability Company of Ashton Woods Mortgage, LLC. "Budget" means the budget established annually pursuant to Section 8.3. "Capital Account" means, with respect to any Unit Holder, the account maintained for such Unit Holder in accordance with the provisions of Section 4.1 hereof. "Capital Contribution" shall mean any contribution to the capital of the Company in cash or property by a Member whenever made. "Certificate" means the Certificate of Formation of the Company and any and all amendments thereto and restatements thereof filed on behalf of the Company with the office of the Secretary of State of the State of Delaware pursuant to the Delaware Act. "Closing Date" shall mean the date of execution of this Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference to any specific provision of the Code or any regulations thereunder shall be deemed to refer also to any successor provisions thereto. "Company" shall mean Ashton Woods Mortgage, LLC, the Delaware limited liability company governed by this Agreement. "Company Distributions" shall mean cash or property which is distributed pursuant to Section 5.3 or Section 11.7 of this Agreement. "Company Expenses" shall mean all expenditures and costs paid out by the Company in the course of the conduct of its business. "Company Revenues" shall mean all receipts from operations and use of assets received by the Company and all other income, receipts, or gain received by the Company in the course of the conduct of its business. "Fiscal Year" means (i) the period commencing upon the formation of the Company and ending on December 31, of the year of formation, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in Clause (ii) of this sentence for which the Company is required to allocate Profits, Losses and other items of company income, gain, loss or deduction pursuant to Article V hereof. "Intercompany Net Cash Balance" means the net of the Company's funds on deposit with Wells Fargo and any amounts owed by the Company to Wells Fargo excluding advances by Wells Fargo pursuant to Section 8.8. "Interest" shall mean the personal property ownership right of a Member in the Company and shall entitle such Member to an allocation of Company Revenues and Company Expenses pursuant to Article V of the Agreement and to a share of the Company Distributions pursuant to Article V of the Agreement. Each Member's Interest is evidenced by and composed of the Units owned by that Member, and such allocation and share of Company Revenues, Company Expenses, and Company Distributions shall be determined based upon the number of Units owned by such Member. "Loan Policies" shall mean those policies, standards and procedures of Wells Fargo, as amended from time to time, relating to residential mortgage loan origination by Retail Offices including the All-Office Memos, Loan Production Memos, Product Catalogs, Conventional Loan Standards Manual, VA Handbook, FHA Underwriting Manual, Compliance Manual, Disclosure Manual, Code of Ethics, Ncyclopedia and other communications with their terminology adjusted to apply to the Company rather than to Retail Offices. "Losses" shall mean the taxable loss of the Company as determined for federal income tax purposes under Code section 703(a) including items separately stated pursuant to section 703(a)(1). "Managing Officer" means the individual responsible for the day to day operation of the Company. "Marketing Member" means Ashton Woods USA, LLC, a Nevada limited liability company. "Member" shall mean a person who has been admitted to the Company as a member as provided in the Agreement and section 18-301 of the Act. "Net Cash Available" means cash on deposit or cash equivalents which includes the Intercompany Net Cash Balance less amounts required to maintain minimum regulatory net worth requirements (in excess of other Company assets if otherwise insufficient, or if cash is required) and less such other amounts the Operating Committee may determine are required to be set aside in reserve to fund future operating and capital expenditures. "Operating Committee" means the Operating Committee of the Company, constituted as provided in Section 6.1. "Person" includes any individual, association, partnership (general or limited), joint venture, trust, estate, limited liability company, corporation or partnership, or other legal entity or organization. "Profits" shall mean the taxable income of the Company as determined for federal income tax purposes under Code section 703(a) including items separately stated pursuant to section 703(a)(1). "Retail Offices" means Wells Fargo's wholly-owned loan production offices in operation from time to time, 9/15/03 2 "Termination Date" means the earliest to occur of a Section 11.3 Termination Date, a Section 11.4 Termination Date, a Section 11.5 Termination Date, a Section 11.6(b) Termination Date or a Section 11.6(c) Termination Date. "Units" with respect to any Member, shall mean the ownership interests of the particular Member which quantify the share of that particular Member in the right, privilege, or interest being addressed. "Unit Holder" means any person who holds one (1) or more Units, regardless of whether such Person is a Member and regardless of whether such Units were initially acquired by such Person from the Company or by assignment from another Unit Holder. "Wells Fargo" shall mean Wells Fargo Home Mortgage, Inc., a California corporation. ARTICLE II Formation, Name and Registered Agent Section 2.1 Formation. Wells Fargo Member and Marketing Member, by execution of this Agreement and the filing of the Certificate with the Delaware Secretary of State, hereby enter into and form the Company as a limited liability company under and pursuant to the Delaware Act. The name and mailing address of each Member or Unit Holder shall be listed on the Schedule of Capital Contributions attached hereto as Exhibit A. The Company shall be required to update the names and addresses on the Schedule of Capital Contributions from time to time as necessary to accurately reflect the information set forth therein. Any amendment or revision to the names and addresses on the Schedule of Capital Contributions made in accordance with this Agreement shall be deemed a supplement to and not an amendment of this Agreement. Any reference in this Agreement to the Schedule of Capital Contributions shall be deemed to be a reference to the Schedule of Capital Contributions as supplemented and in effect from time to time. The Members agree that the rights, powers, duties and liabilities of the Members and Managing Officer shall be as provided in the Delaware Act, except as otherwise provided in this Agreement. Section 2.2 Name and Registered Agent. The name of the Company is Ashton Woods Mortgage, LLC. Its registered agent is Corporation Service Company or such other agent as the Members may hereafter determine. ARTICLE III Business Purpose Section 3.1 Character of the Business. The purpose of the Company shall be to carry on the business of residential mortgage lending, to engage in all legal activities related thereto or in furtherance thereof and to engage in such other activities as the Operating Committee shall determine from time to time. Section 3.2 Other Qualifications. The Members agree that the Company shall file or record such documents and take such other actions under the laws of any jurisdiction as are necessary or desirable to permit the Company to do business in any such jurisdiction as is selected by the Company and to promote the limitation of liability for the Members in any such jurisdiction. Section 3.3 Prohibited Activities. The Company shall not participate in any activity that violates the Real Estate Settlement Procedures Act of 1974 or any other law or regulation. The Company shall not engage in any prohibited activities for a national bank or its subsidiaries and shall obtain any required regulatory approvals for a national bank subsidiary before commencing any activity. As an indirect subsidiary of a national bank, the Company consents to supervision and examination by the Office of the Comptroller of the Currency. 3 Section 3.4 Limitations on Other Activities. (a) Except as provided in this section, this Agreement shall not be deemed to restrict in any way the freedom of either Member or any Affiliate to conduct any business or activity whatsoever, including, but not limited to, the acquisition, leasing, operation, management, syndication, brokerage, development, improvement and exploitation of real property, investment therein or financing thereof. (b) While it is a Member, Marketing Member shall not, nor shall it suffer or permit any of its Affiliates, other than the Company, to engage in the residential mortgage lending business, directly or indirectly, either by themselves or through a joint venture or any other similar arrangement with any other party that would permit Marketing Member or any of its Affiliates to engage or participate in such residential mortgage lending business. (c) During the term of this Agreement and for one (1) year following the Termination Date, Marketing Member and its Affiliates will not, directly or indirectly, hire any employees of the Company or of Wells Fargo or solicit any employees of the Company or of Wells Fargo for the purpose of hiring or inducing them to leave their employment with the Company or Wells Fargo. Upon dissolution of the Company, employees of the Company and Wells Fargo for purposes of this subsection shall include anyone who was employed by the Company or Wells Fargo during the six (6) months prior to the Termination Date. The restrictions of this subsection shall survive termination of this Agreement. (d) Neither Member shall be accountable to Company or to the other Member for any activity or business permitted under this Article 3 except for the business of Company. Neither Member shall have any right by virtue of this Agreement or by their status as a Member to be apprised of the independent business or activities of the other Member, nor to be allowed to participate therein or to the income or profits derived therefrom. Neither Member shall be required to devote full time to Company, but only so much time as may be necessary to accomplish the purposes of Company and the duties specifically set forth in any agreements related to Company, Section 3.5 Transactions Involving the Members. (a) The Marketing Member shall cooperate with and actively promote the Company and the Company's loan products to its customers consistent with all applicable legal requirements. Ail aspects of the Company's marketing efforts shall be subject to the approval of the Operating Committee, including but not limited to cost, approach, target audience, frequency, etc. (b) [Reserved.] (c) Except as may be expressly provided for in this Agreement or in any agreements executed between Company and any Member or as approved by the Operating Committee, no payment will be made by Company to any Member for the services of such Member or the employees of such Member. (d) Marketing Member and its Affiliates shall provide Wells Fargo with the same access to its offices as it provides to any other mortgage lender (other than Company). (e) Within 45 days of the end of each calendar year or as soon thereafter as it becomes available, Marketing Member shall provide Company with the number and location of Marketing Member's offices. On a monthly basis within a reasonable time after the information is available, Marketing Member shall provide Company with the market share, transaction volume in a dollar amount and the number of transactions for Marketing Members previous month. 9/15/03 4 ARTICLE IV Capital Accounts Section 4.1 Capital Accounts. A separate Capital Account shall be maintained for each Member of the Company. Each Member's Capital Contributions and its share of all Company Revenues shall be credited to its Capital Account and each Member's share of all costs, expenses, losses and Distributions {including return of capital) of the Company shall be debited to its Capital Account, all as allocated under this Agreement. Each Member's initial Capital Contribution, as reflected on Exhibit A, is due and payable upon execution of this Agreement. Any subsequent Capital Contribution pursuant to Section 8.8 shall be due and payable within 15 days of receipt of notice of the need for the additional Capital Contribution. Section 4.2 Units. A Unit Holder's limited liability company interest in the Company shall be represented by the "Unit" or "Units" held by such Unit Holder, Each Unit Holder's respective Units shall be set forth on the Schedule of Capital Contributions attached hereto, as supplement from time to time. Each Unit Holder hereby agrees that its limited liability company interest in the Company and its Units shall for all purposes be personal property. A Unit Holder shall have no interest in specific Company property. Section 4.3 Status of Capital Contributions. (a) A Unit Holder's Capital Contributions may be returned to it, in whole or in part, at any time, but only (i) with the consent of all Members or (ii) pursuant to a dissolution of the Company in accordance with Section 11.7. Any such returns of Capital Contributions shall be made to all Unit Holders in proportion to the number of Units then held by each Unit Holder. No Member shall have priority over any other Member either as to the return of its Capital Contribution or as to profits or distributions except as specifically set forth in this Agreement. Notwithstanding the foregoing, no return of a Unit Holder's Capital Contributions shall be made hereunder if such distribution would violate applicable state law. Under circumstances requiring a return of any Capital Contribution, no Unit Holder shall have the right to demand or receive property other than cash, except as may be specifically provided in this Agreement. (b) Except as provided in Section 8.8 and by applicable law, the Members shall be liable only to make their Capital Contributions pursuant to Section 4.1 hereof, and no Member or Assignee shall be required to lend any funds to the Company or, after a Member's obligations to make its Capital Contributions pursuant to Section 4.1 hereof shall have been satisfied in full, to make any additional Capital Contributions to the Company. No Unit Holder shall have any personal liability for the repayment of any Capital Contribution of any other Member or Assignee. ARTICLE V Allocation of Revenues, Expenses, Profits and Losses Section 5.1 Company Revenues and Expenses. All Company Revenues and Company Expenses shall be utilized to determine Profits and Losses. Section 5.2 Allocation of Items for Federal Income Tax Purposes. To the extent permitted by law, all items of Company taxable income, gain, loss, credit, and deduction recognized or allowable for Federal income tax purposes shall be allocated and credited or charged to the Members in the same manner as the revenues, income, receipts, costs, or expenses giving rise to such items of taxable income, gain, loss, credit, or deduction are allocated and credited or charged. Any Member allocated and charged a particular cost or expense shall be entitled to such deductions or credits as are attributable to such cost or expense in computing such Member's taxable income or tax liability to the exclusion of any other Member. Upon the sale or other transfer of any asset of the Company, any recapture of depreciation deductions or other deductions previously taken shall be allocated to the Member to whom such deductions were originally allocated, and any recapture of investment tax credit shall be allocated to the Member to whom such credit was originally allocated. 9/15/03 5 Section 5.3 Distribution of Cash. All Company Distributions shall be made among the Members in proportion to their respective Units. Cash of the Company which, in the judgment of the Members, is not required to meet obligations of the Company nor reasonably necessary for future Company operations shall be distributed not less frequently than quarterly to the Members in proportion to their respective Units, not later than forty-five (45) days after the end of each quarterly period with respect to which such distribution is being made. Section 5.4 Allocation of Profits. After giving effect to the special allocations provided in Section 5.6 hereof, Profits for any fiscal year shall be allocated to the Members as follows: (a) First, to the Members until the aggregate Profits allocated to the Members for such fiscal year and all previous fiscal years pursuant to this Section 5.4(a) are equal to the aggregate Losses allocated to the Members pursuant to Section 5.5 hereof for all previous fiscal years. The Profits allocated to the Members pursuant to this Section 5.4(a) shall be allocated among them in proportion to the respective amounts of aggregate Losses allocated to each Member under Section 5.5 hereof for all previous fiscal years. (b) Thereafter, all remaining Profits shall be allocated to the Members pro rata in proportion to their respective Units. Section 5.5 Allocation of Losses. After giving effect to the special allocations provided in Section 5.6, Losses for any fiscal year shall be allocated to the Members that have sufficient basis in their membership interests to enable them to deduct the Losses. Any remaining Losses shall then be allocated to the Members pro rata in proportion to their respective Units. Section 5.6 Special Allocations. (a) Regulatory Allocations. The provisions of the final and temporary Treasury Regulations promulgated under Code Section 704(b) relating to the qualified income offset, minimum gain chargeback, minimum gain chargeback with respect to nonrecourse debt, the allocation of nonrecourse deductions and the allocation of items of deduction, loss or expenditure relating to nonrecourse debt are hereby incorporated by this reference and shall be applied to the allocation of Company items of income, gain, loss or deduction in the manner provided in such Treasury Regulations. However, the Members do not intend that the "deficit restoration obligation" described in Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations or any successor provision thereto be incorporated into this Agreement. For purposes of this Section 5.6(a), nonrecourse deductions shall be allocated among the Members in proportion to their respective Units. (b) Curative Allocations. In the event that items of income, gain, loss or deduction are allocated to one or more Members pursuant to Section 5.6(a) above, subsequent items of income, gain, loss or deduction will first be allocated (subject to the provisions of Section 5.6(a)) to the Members in a manner designed to result in each Member having a Capital Account balance equal to what it would have been had the original allocation of Profits or Losses or items thereof pursuant to Sections 5.6(a) not occurred. Section 5.7 Tax Allocations; Code Section 704(c). (a) Contributed Property. In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its fair market value at the time of its contribution to the Company. (b) Revalued Property. Allocations of income, gain, loss and deduction with respect to any asset revalued in accordance with Treasury Regulations under Code Section 704 shall take account of any 09/15/03 6 variation between the adjusted basis of such asset for federal income tax purposes and its fair market value in the same manner as under Code Section 704{c) and the Treasury Regulations thereunder and as required by Treasury Regulation Section 1.704-1(b)(2)(iv)(g). (c) Allocation Solely for Tax Purposes. Any elections or other decisions relating to allocations described in subsections (a) or (b) of this Section 5.7 shall be made by the Members in any manner that reasonably reflects the purposes and intention of this Agreement. Allocations pursuant to this Section 5.7 are solely for purposes of federal, state and local taxes and shall not affect, nor in any way be taken into account in computing any Member's Capital Account or share of Profits, Losses or other items or distributions pursuant to any provision of this Agreement. Section 5.8 Other Allocation Rules. (a) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined by the Members using any permissible method under Code Section 706 and the Treasury Regulations thereunder. (b) Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction, and any other allocations not otherwise provided for shall be divided among the Members in the same proportions as they share Profits or Losses, as the case may be, for the year. (c) Except as otherwise provided in this Agreement, all items of income, gain, loss or deduction for federal income tax purposes shall be allocated to the Members in the same manner as the corresponding book allocations of such items as provided in this Article V. (d) Upon (1) the admission of any new Member to the Company; (2) the liquidation of a Member's Interest in the Company; (3) the making of any additional Capital Contributions or partial withdrawals by a Member which changes a Member's relative Interest (other than a de minimus amount) in the Company; and immediately before liquidation of the Company, all the property of the Company shall be revalued at its fair market value, and the Members' Capital Accounts shall be adjusted to reflect the manner in which the unrealized income, gain, loss or deduction inherent in such property (that has not been reflected in adjustments to the Members' Capital Accounts previously) would be allocated among Members if the property were sold at its fair market value on the valuation date. Section 5.9 Consistent Tax Reporting. Each Member hereby agrees, for state and federal income tax purposes, to report its respective share of Company items of income, gain, loss, deduction or credit in a manner consistent with the tax treatment adopted by the Company. Section 5.10 Tax Warranties. Each Member agrees that no other Member has made any representations or warranties as to the treatment or characterization, for federal income tax purposes, of the contributions, distributions, or allocations hereof, except as provided for herein. Each Member understands that Company taxation and the transactions contemplated by this Agreement involve complex issues of federal income taxation and each Member has been advised to and has had the opportunity to obtain competent independent tax counsel with respect to this Agreement and the transactions contemplated hereby. Section 5.11 Tax Elections. All elections by the Company for federal income tax or other tax purposes shall be made by the unanimous agreement of the Members. Section 5.12 Tax Matters Member. (a) Wells Fargo Member shall serve as the "Tax Matters Member" of the Company under the Code. Each Member, by the execution of this Agreement, consents to such designation of the Tax Matters Member and agrees to execute, certify, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to evidence such consent. 9/15/03 7 Wells Fargo Member shall take such action as may be necessary to cause every Member to become a notice partner within the meaning of Code Section 6223. (b) The Tax Matters Member shall be indemnified and reimbursed for all expenses, including legal and accounting fees, claims, liabilities, losses and damages incurred in connection with its serving in that capacity. Notwithstanding the preceding sentence, the Tax Matters Member shall not be entitled to indemnification for such costs and expenses if such Member has not acted in good faith. ARTICLE VI Management of the Company Section 6.1 General. The overall management and control of the business and affairs of the Company shall be vested in the Operating Committee consisting of four individuals, with each Member appointing two (2) individuals to the Operating Committee. The Company may have a Managing Officer appointed by the Operating Committee. The Managing Officer of the Company shall not be appointed to the Operating Committee. The number of individuals on the Operating Committee may be reset by the Operating Committee from time to time, provided that each Member shall appoint an equal number of individuals to the Operating Committee. Each Member may remove and replace the individuals appointed by it at any time and for any reason. Any vacancy on the Operating Committee shall be filled by the Member that had appointed the individual to the position that has become vacant. Section 6.2 Operating Committee Procedures. Except where herein expressly provided to the contrary, all decisions with respect to the management and control of the Company shall be made and agreed to by the Operating Committee and shall be binding on the Company. All decisions made by the Operating Committee shall be unanimous, shall be documented in writing by an individual designated by the Operating Committee and shall be promptly sent to each individual on the Operating Committee. A quorum of the Operating Committee shall consist of one individual from each Member. Action may be taken by the Operating Committee by telephone conference, by meeting in person, by written action in lieu of a meeting or in such other manner approved by all Members. Section 6.3 Loan Policies. The Company expressly adopts the Loan Policies effective on the Closing Date as provided to the Company by Wells Fargo. Any updates to the Loan Policies issued by Wells Fargo shall automatically be adopted by the Company unless the Operating Committee expressly decides not to adopt a particular policy. Any employee who violates the Loan Policies shall be subject to termination unless the Operating Committee expressly decides not to terminate the employee. Section 6.4 Major Decisions. No act shall be taken or funds expended or obligation incurred by the Company, any individual on the Operating Committee, or the Managing Officer with respect to a matter within the scope of any of the major decisions ("Major Decisions") affecting the Company, as defined below, unless such Major Decision has been approved by the members. A decision shall be a Major Decision if it satisfies one of the following: (a) Decisions relating to the selection, evaluation, retention and compensation of the Managing Officer or any other executive officers of the Company as may be appointed by the Operating Committee; (b) Decisions regarding new business ventures and material deviations by the Company from the Loan Policies in effect from time to time; (c) Decisions relating to the hiring policy, compensation, terms of employment or termination of non-clerical or non-support staff employees of the Company; (d) Decisions relating to matters involving transactions, expenditures, commitments or other contractual obligations (or groups of similar transactions or such other events) in an amount in excess of 9/15/03 8 $5,000 except transactions to originate, fund and sell residential real estate mortgage loans that are in the day-to-day course of the Company's business; (e) Decisions relating to obtaining any financing for the Company pursuant to Section 8.8; (f) Decisions relating to the terms, conditions, limits and deductions of any risk financing program in addition to the program provided by Wells Fargo or its Affiliate pursuant to the Service Agreement referenced under Section 6.8; (g) Decisions related to establishing or maintaining cash, cash equivalents or reserves for the Company; (h) Decisions relating to amendment or termination of the Service Agreement referenced under Section 6.8 and obtaining a substitute service provider upon termination of such Service Agreements; and (i) Any other decision or action referred to the Operating Committee by an individual on the Operating Committee which by any provision of this Agreement or by law is required to be approved by the Operating Committee. Section 6.5 Managing Officer. The Managing Officer shall be responsible for the implementation of the decisions of the Operating Committee and for conducting the ordinary and usual day-to-day business and affairs of the Company, as limited by this Agreement. The Managing Officer of the Company, shall in good faith use his or her best efforts to implement or cause to be implemented all Major Decisions approved by the Operating Committee and to conduct or cause to be conducted the ordinary and usual business of the Company in accordance with and subject to the direction of the Operating Committee and the Loan Policies and in accordance with the business plan and current Budget approved by the Members. The Managing Officer may, except as otherwise determined by the Operating Committee, delegate in writing to other officers, employees or agents of the Company matters for which the Managing Officer may be responsible in accordance with this section, but the Managing Officer shall continue to be responsible for such matters. The initial and successor managing officers are listed on the Schedule of Initial and Successor Managing Officers. Section 6.6 FHA Matters. Section 6.6 shall be limited in application solely to any and all matters involving the Federal Housing Administration {"FHA") of the United States Department of Housing and Urban Development and FHA-insured loans. In the event of any conflict between the provisions set forth in this Section and any other provision of this Agreement, the provisions set forth in this Section will take precedence over all other provisions of this Agreement with respect to all FHA matters. The Managing Officer is designated to deal exclusively with FHA in all aspects of the FHA mortgage insurance program, including, without limitation, the making of applications for mortgage insurance claims and collecting the benefits of mortgage insurance for the Company. The Managing Officer is hereby appointed as the managing agent (the "Managing Agent") of the Company with respect to FHA matters. The Operating Committee may choose a person other than the Managing Officer as Managing Agent on the condition that there will at any time be one and only one Managing Agent with which FHA deals exclusively. Any such substitute person shall have the rights and responsibilities of the Managing Officer as Managing Agent under this Section. If (a) the Managing Agent resigns or (b) another Managing Agent is appointed, FHA will be immediately advised of such event and, if applicable, the name of the new Managing Agent. The Company shall inform FHA of any amendment to this Agreement it intends to make that could affect the Company's dealings with FHA and FHA-insured mortgages. Upon dissolution of the Company, any FHA-insured mortgages owned or serviced by the Company may only be transferred to another FHA-approved mortgage lender. Section 6.7 Office Space. The Members shall lease to the Company in each of their offices as determined by the Operating Committee, space from which the Company will conduct the business of the Company. Such space shall be separately identified and segregated in a manner required by all applicable laws and regulations. Rental rates charged to the Company by a Member shall be set at rates 9/15/03 9 that reflect actual market rates for comparable space in the area in which each office used by the Company is located. The foregoing lease arrangements shall be set forth in separate written lease agreements to be agreed upon and executed between the lessor Member and the Company. Notwithstanding the terms of any separate lease agreement, any agreement leasing space for the Company from a Member or any of its Affiliates shall terminate automatically upon any termination of (the Company subject to an additional period as necessary to wind down the business of the Company. Section 6.8 Service Agreement. Wells Fargo, or its Affiliate, shall provide to the Company, certain services required by the Company in conducting a residential mortgage lending business, as set forth in the attached Service Agreement to be executed between Wells Fargo and the Company. The Company shall provide residential mortgage loan financing to its customers. Wells Fargo, or one of its Affiliates, shall purchase mortgage loans if offered by the Company in accordance with the loan purchase agreement terms to be executed by Wells Fargo or one of its Affiliates, and the Company. The Company shall sell at least ten percent (10%) of its annual loan production to investors other than Wells Fargo. Section 6.9 Credit Agreement. The Company shall fund its loans through a warehouse line of credit provided by Wells Fargo as set forth in the attached Credit Agreement or such other source as determined by the Operating Committee. ARTICLE VII Other Rights, Liabilities and Obligations of Members Section 7.1 Liability of Members. No Member shall be personally liable for the expenses, liabilities, debts, or obligations of the Company except as specifically set forth in this Agreement or as provided in the Act. Section 7.2 Other Provisions Applicable to Members. Except as otherwise specifically provided in this Agreement, no Member shall have the right to withdraw or retire from, or reduce its contribution to the capital of, the Company. No Member shall have the right to demand or receive property other than cash in return for its Capital Contribution. No Member shall have priority over any other Member either as to the return of its Capital Contribution or as to profits or distributions except as specifically set forth in this Agreement. ARTICLE VIII Accounting and Fiscal Matters Section 8.1 Maintenance of and Access to Records. Wells Fargo or its Affiliate on behalf of the Company shall keep complete and accurate books of account and records relative to the Company's business based on information submitted to it by the Company. The accrual method of accounting shall be used by the Company for financial and income tax purposes. The Company's books and records shall at all times be maintained at the principal business office of Wells Fargo, or the Accountants, or such other place agreed upon by the Members, and shall be available for inspection by each of the Members or their duly authorized representatives during reasonable business hours. The fiscal year of the Company shall end on December 31 of each year or such other date as determined by the Operating Committee and allowed by the Code. Welts Fargo shall cause to be prepared financial statements in accordance with the attached Service Agreement. Section 8.2 Bank Accounts. Wells Fargo shall deposit all of the funds of the Company into one or more bank accounts for the Company. Unless otherwise required by regulatory authority, each such account shall be established with an Affiliate of Wells Fargo that holds deposits insured by the Federal Deposit insurance Corporation. Wells Fargo shall separately account for all funds of the Company. The Company may withdraw its funds only to pay the Company's debts, pay expenses or to be distributed to the Members or as directed by the Operating Committee pursuant to this Agreement. Section 8.3 Budget. The Company shall prepare a preliminary annual Budget for the first partial fiscal year of the Company. At least thirty (30) days prior to the end of each fiscal year of the Company, the 09/15/03 10 Managing Officer will develop and deliver to the Operating Committee for its review and approval a Budget for the Company for the next fiscal year. As set forth in Section 6.4(d), approval of the Budget shall be a Major Decision. Section 8.4 Company Tax Returns. Wells Fargo, its Affiliate, or such other person agreed upon by the Members, shall, for each fiscal year, cause to be prepared and filed on behalf of the Company such federal, state and city tax returns as may be required by law, and in connection therewith, shall make any elections deemed advisable; provided, however, the Company shall be given prior written notice thereof. Copies of such tax returns shall be delivered to each Member within 10 days after each such filing. The Company's federal and state income tax returns shall be approved by the Operating Committee in advance of filing. Section 8.5 Tax Audits. Wells Fargo Member is hereby designated to manage administrative tax proceedings conducted by the Internal Revenue Service or state tax authorities with respect to the Company. The taking of any action or the failure to take any action in connection with any such proceeding, except to the extent required by law, is a matter for Wells Fargo Member, subject to the direction of the Operating Committee. Wells Fargo Member shall give prompt written notice to the Members of any such administrative proceeding. Any Member has the right to participate in such administrative proceedings relating to the determination of tax items at the Company level. Expenses of such administrative proceedings undertaken by Wells Fargo Member will be paid for out of the assets of the Company. If any Member elects to participate in such proceedings, the Member will be responsible for its expenses incurred in connection with such participation. Further, the cost of any adjustments to a Member and the cost of any resulting audits or adjustments of a Member's tax return, will be borne solely by the affected Member. Section 8.6 Internal Audit. The ongoing activities of the Company shall be subject to regulatory audit by Wells Fargo Audit Services, Inc. at no direct cost to the Company. Wells Fargo Audit Services, Inc. shall have no liability with respect to the Company. A copy of any regulatory audit report prepared by Wells Fargo Audit Services, Inc. related to the Company shall be provided to the Operating Committee. Section 8.7 The Accountants. Any services provided by the Accountants under this Agreement shall be an expense of the Company. The Accountants shall prepare annual audited financial statements as set forth in the attached Service Agreement. Section 8.8 Advances. Wells Fargo shall advance funds up to $25,000 to the Company as necessary when the Company's Net Cash Available falls below $0. Any such advances shall accrue interest at the prime rate in the Wall Street Journal on the date of the advance until repaid. Accrued interest and the principal of any such advances shall be repaid out of the profits generated by the Company or pursuant to a capital call to the Members. Wells Fargo shall notify the Operating Committee when additional capital is required to meet regulatory minimum capital requirements or to repay advances and each Member shall contribute its proportionate share of the amount necessary to satisfy the requirement. ARTICLE IX Limitations on Dispositions of Members' Interests Section 9.1 Basic Restrictions. Except as otherwise provided in this Article IX, no Member may sell, assign, give, hypothecate, pledge, transfer, bequeath, or otherwise dispose of any or all of its interest, in whole or in part, voluntarily, involuntarily, by operation of law, or otherwise, to any other person or entity. Section 9.2 Representations and Warranties. Each Member hereby represents and warrants to the Company and to the other Members that its acquisition of its Interest is made as principal for its account for investment purposes only and not with a view to the resale or distribution of such Interest. Each Member agrees that it will not sell, assign, give, hypothecate, pledge, transfer, bequeath, or otherwise dispose of any or all of its Interest to any person or entity who or which does not similarly represent and warrant and agree as provided in this Section 9.2. 09/15/03 11 Section 9.3 Disposition of Interests. The sale, assignment, gift, hypothecation, pledge, transfer, or other disposition ("Transfer") of Interests by or in respect of a Member shall be subject to the following conditions and restrictions in addition to any others which are provided for in this Agreement: (a) No Member may Transfer any or all of its Interest (other than to an Affiliate of such Member) without the consent of each other Member (such consent to be granted or withheld in each Member's sole discretion). (b) No Member may Transfer any or all of its Interest if such Transfer would cause the termination of the Company for Federal income tax purposes. Any purported Transfer which would cause the termination of the Company for Federal income tax purposes shall be void ab initio. Counsel for the Company shall give to the Company its opinion, at the expense of the Member seeking to effect such Transfer, as to whether such Transfer would cause the termination of the Company for Federal income tax purposes. (c) No Transfer of, or offer to Transfer, any Interest may be made unless the Company shall have received, at the expense of the Member seeking to effect such Transfer an opinion of counsel satisfactory to the Members that such proposed Transfer (i) may be effected without registration of the Interest under the Securities Act of 1933, as amended, and (ii) would not be in violation of any applicable state securities or "Blue Sky" law (including investment suitability standards). Section 9.4 Admission of Transferee as Additional or Substitute Member. Any person to whom any Interest or portion thereof is Transferred ("Transferee") shall be entitled to be admitted as a Member hereunder and to have all of the rights herein conferred upon a Member only if (a) such transferee's admission as a Member will not violate, nor cause the Company to violate, any applicable laws, rules, or regulations, including federal and state securities laws, and either such transferee shall have delivered an opinion of counsel satisfactory to the Members, or counsel for the Company shall have delivered an opinion, to such effect; (b) the consent of all of the Members shall have been given, which consent may be evidenced by the execution by all of the Members of a Certificate evidencing the admission of such transferee as a Member; (c) the transferee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as the Members may require in order to effect the admission of such transferee as a Member; (d) such transferee qualifies and becomes a Member within the meaning of the Act by the procedures set forth in the Act; (e) such transferee shall have delivered to the Members a letter containing a representation and an agreement in the form set forth in Section 9.2 of this Agreement; (f) if the transferee is not an individual, the transferee shall have provided the Members with evidence satisfactory to counsel for the Company of its authority to become a Member under the terms and provisions of this Agreement; (g) such transferee pays to the Company a sum which is sufficient to cover all expenses (including legal fees) connected with the admission of the transferee as a Member pursuant to this Agreement and the Act, including without limitation the cost of any opinion of counsel referred to above. Section 9.5 Execution of Documents, Etc. Each Member hereby consents to the execution and recordation on its behalf by the Company of any amendment hereto required for the purpose of admitting 09/15/03 12 as a Member the transferee of any or all of the Interest of a Member in the Company in this Article IX and to the execution and recordation on its behaif of any other instruments required in connection therewith, and the Company is hereby granted the right to admit any such transferee upon ail of the terms set forth above. In addition, each Member agrees to execute at the request of the Company any and all documents required to be executed by such Member to effect the admission as a Member of the transferee of any or all of the interest of a Member in the Company pursuant to this Article IX. Section 9.6 Filings By Company. The Company shall cooperate with any transferee seeking to become a Member by preparing the documentation required by this Article IX and making all official filings and publications. Section 9.7 Pledges. No Member shall mortgage, pledge, or otherwise encumber all or any part of such Member's Interest in the Company at any time. Section 9.8 No Withdrawal Rights Prior to Dissolution. Prior to the dissolution of the Company, no Member may withdraw from the Company or receive any return of capital or other distribution of Company assets in respect of any withdrawal or attempted withdrawal. ARTICLE X Amendment of Agreement Section 10.1 Amendment. Any amendment or supplement to this Agreement shall only be effective if in writing and if the same shall be consented to by all of the Members. Section 10.2 Procedure for Amendment. Any Member may propose an amendment or supplement to this Agreement, and any such amendment or supplement may be proposed by mailing to all of the Members a written request for consent to such amendment or supplement, accompanied by the text of the proposed amendment or supplement, and a written statement of the reasons for such proposal. ARTICLE XI Dissolution Section 11.1 No Dissolution. The Company shall not be dissolved by the admission of additional or substitute Members in accordance with the terms of this Agreement or by the death, retirement, resignation, expulsion, bankruptcy or dissolution of a Member or the occurrence of any other event under the Act that terminates the continued membership of a Member in the Company except as expressly provided in the Agreement. Section 11.2 Term. The Company shall be in effect for a term beginning on the date the Certificate of Formation of the Company is filed with the Delaware Secretary of State in accordance with the provisions of the Act and shall continue for a minimum of ten (10) years unless sooner dissolved and liquidated in accordance with the provisions of this Article. At the end of the ten (10) year minimum term, the Company shall continue in business until dissolved and liquidated in accordance with the provisions of this Article. Section 11.3 Voluntary Withdrawal. Any Member shall have the right to withdraw from the Company at any time by giving the other Members not less than ninety (90) days prior written notice. In addition, if Marketing Member is no longer an Affiliate of Ashton Woods Homes, Marketing Member must give notice to Wells Fargo Member of the change in affiliation on the date of the change. During the continuance of the notice period, the Members shall continue to perform their respective obligations in accordance with the terms of this Agreement. The Member giving the notice shall be referred to hereinafter as the "Electing Member" for purposes of Section 11.8. The day following expiration of the 90 day notice period shall be referred to as the "Section 11.3 Termination Date." The Company shall be liquidated pursuant to the provisions of Section 11.7. 09/15/03 13 Section 11.4 Bankruptcy. If: (a) any Member shall file a voluntary petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under the present or any future Federal Bankruptcy Act, or any other present or future applicable Federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, conservator or liquidator of said Member or of all or any substantial part of its properties or its interest in the Company (the term "acquiesce" includes, but is not limited to, the failure to file a petition or motion to vacate or discharge any order, judgment or decree providing for such appointment within ten (10) days after the appointment); or (b) a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against any Member seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future Federal Bankruptcy Act, or any other present or future applicable Federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors, and said Member shall acquiesce in the entry of such order judgment or decree (the term "acquiesce" includes, but is not limited to, the failure to file a petition or motion to vacate or discharge any order, judgment or decree within ten (10) days after the entry of the order, judgment or decree), or such order, judgment or decree shall remain unvacated and unstayed for an aggregate of ninety (90) days (whether or not consecutive from the date of entry thereof), or any trustee, receiver, conservator or liquidator of said Member or of all or any substantial part of its property or its interest in the Company shall be appointed without the consent or acquiescence of said Member and such appointment shall remain unvacated and unstayed for an aggregate of sixty (60) days (whether or not consecutive); or (c) any Member shall give notice to any governmental body of insolvency or pending insolvency, or suspension or pending suspension of operations. then, and in any such event such Member shall be deemed, as of the date of occurrence of the respective event, to be the "Electing Member" for purposes of Section 11.8. The filing date of the bankruptcy petition shall be the "Section 11.4 Termination Date" and the Company shall be liquidated in accordance with Section 11.7. Section 11.5 Automatic Termination. In the event: (a) any Member, or its Affiliate, is prohibited by law, rule or regulation or by regulatory directive or order by any of their governing regulatory authorities, in any case, from participating in the Company; or (b) all of the Members mutually agree in writing that the business of the Company shall be terminated; then the Company shall terminate automatically and no Member shall be considered an "Electing Member" for purposes of Section 11.8. The Members shall provide in writing for a termination date ("Section 11.5 Termination Date"). The Company shall be liquidated pursuant to Section 11.7. Section 11.6 Default. (a) if any Member (i) fails to perform in any material respect any of its obligations or covenants or (ii) breaches in any material respect any of its representations, warranties or promises, in either case, set forth in this Agreement (in either case, a "Default"), any other Member ("Non-defaulting Member") shall have the right within 30 days of the date (i) of the Default or (ii) when the Non-defaulting Member learns of the Default to give the defaulting party ("Defaulting Member") a written notice of the Default ("Notice of Default"). The Notice of Default shall, as applicable, set forth in detail the obligation(s) or covenant(s) that the Defaulting Member has not performed or the representation(s), warranty(ies) or promise(s) that the Defaulting Member has breached. 09/15/03 14 (b) If, within a 15-day period following receipt of the Notice of Default, the Defaulting Member cures such Default, it shall be deemed that the Notice of Default was not given and the Defaulting Member shall lose no rights hereunder. If, however, within such 15-day period, the Defaulting Member does not cure such Default, the Non-Defaulting Member hereunder shall have the right within 30 days of the expiration of the 15-day cure period to terminate this Company by giving the Defaulting Member written notice thereof ("Termination Notice"). The Company shall terminate on the date of the Termination Notice ("Section 11.6(b) Termination Date") The remedy of the Non-Defaulting Member shall be limited to the termination fee provisions provided for under Section 11.8. (c) If a Defaulting Member disputes the basis set forth in the Notice of Default, the Defaulting Member must file for arbitration pursuant to Section 13.9 below within thirty (30) days of the Section 11.6 (b) Termination Date. If it is ultimately determined by the arbitrator that the Defaulting Member was not in default as specified in the Notice of Default, then the Non-Defaulting Member shall be deemed an "Electing Member" under Section 11.8. The Company shall be deemed to have terminated on the date of the Termination Notice ("Section 11.6 (c) Termination Date"). The Company shall be liquidated pursuant to Section 11.7. The remedy of the Non-Electing Member shall be limited to the termination fee provisions provided for under Section 11.8. Section 11.7 Liquidation. (a) On the Termination Date: (1) the Company shall not take any additional loan applications; (2) the Company shall terminate its real property and equipment leases and pay for any early termination penalties unless a Member agrees to assume full responsibility for the leased space and equipment; (3) the Company shall transfer its loan pipeline and any other assets to the Non-electing Member or as the Non-electing Member directs, provided that any FHA applications may only be transferred to an FHA approved lender (or in the event of a Section 11.5 Termination Date, as agreed by the parties); the Company shall have 120 days to close out its remaining loan pipeline; any loan applications scheduled to close more than 120 days after the termination date shall be brokered out to another lender as agreed between the Members for a broker fee as agreed between the Members and the lender. (4) any restrictions on the activities of the Members contained in this Agreement shall cease unless the restriction specifically provides that it shall continue after termination; and (5) the Accountants or other third party mutually agreed to between the Members shall be retained to handle the liquidation consistent with the provisions of this Agreement. (b) Subject to Section 11.8, the assets of the Company shall be paid or distributed in the following order of priority, unless otherwise required by applicable law: (1) To pay (or make provision for the payment of) all creditors of the Company, including the Members, in the order of priority provided by law; and (2) Except as provided in Section 11.8, to distribute to the Members in accordance with (or in direct proportion to if less than) their respective Units, as adjusted for item (1) above and all Company operations up to and including such liquidation. Thirty days after the Termination Date shall be the "Liquidation Date." All distributions shall be made within 90 days of the Liquidation Date. 09/15/03 15 Section 11.8 Electing Members Termination Fee. (a) It is understood that in the course of operation of the Company, the Members will contribute to the Company significant funds, resources and knowledge, including information, techniques, processes and business clientele, the value of which cannot be calculated. As a material inducement to enter into this Agreement and to develop and disclose such information, the Members agree to the provisions set forth in this Section 11.8. In the event of a Section 11.3 Termination Date, a Section 11.4 Termination Date, or a Section 11.6(b) or (c) Termination Date, the Non-Electing Member shall not have to make any payment to the Company as compensation for the transfer of the Company's loan pipeline and other assets. In addition, in the event of any Termination Date specified in this Section any net remaining capital after liquidation of the Company shall be paid out to the Non-Electing Member. In the event of a Section 11.6(c) Termination Date, the Electing Member shall account for and pay to the Non-Electing Member the net profits generated from the Company's pipeline transferred to the Non-Electing Member at liquidation along with the net remaining capital. The Electing Member shall pay the net profits and the net remaining capital to the Non-Electing Member within thirty (30) days of the arbitrator's decision. Any amount remaining unpaid after expiration of the 30 day period shall bear interest at the rate of 1% over the prime rate published in the Wall Street Journal on the last business day of the 30 day period. (b) From the date of the Withdrawal Notice, the bankruptcy filing or the Notice of Default until the loans in the Company's pipeline have been closed, an Electing Member shall not solicit or incent the customers in the loan pipeline to transfer their applications to any other lender. During this same period of time, an Electing Member shall not provide any third party with the names of customers in the pipeline, their telephone numbers, copies of their applications or any other information that would enable the third party to solicit the customers to transfer their loan applications. In the event of a breach of this provision, the Electing Member shall be liable for the profit that would have been generated from any customers who transfer their applications to another lender after the breach of this prohibition. In addition, in the event that damages for breach of this prohibition are awarded, the Electing Member shall also be liable for the Non-Electing Member's attorney fees. ARTICLE XII Representations and Warranties Section 12.1 Member Representations and Warranties. Marketing Member represents and warrants as of the Closing Date that: (a) Marketing Member is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Nevada and has all requisite power and authority and licenses to own or lease its property and to carry on its business as it is now being conducted. The execution, delivery and performance of this Agreement by Marketing Member have been duly authorized by all proper action on the part of Marketing Member, and are within its powers and will not conflict with or be in violation of Marketing Member's organizational documents. This Agreement constitutes the legal, valid and binding obligation of Marketing Member, enforceable against Marketing Member in accordance with its terms. (b) The performance of this Agreement by Marketing Member will not violate or result in a breach of, constitute a default under, give rise to any right of acceleration or termination under any law or any contract, agreement, note, bond, license, indenture, mortgage, lease agreement or other instrument or obligation to which Marketing Member is a party or by which it is bound or affected or violate any rule or regulation of any administrative agency, or order, writ, injunction, judgment or decree of any court, administrative agency or governmental body applicable to it. 09/15/03 16 (c) Marketing Member has obtained and kept in force all material governmental licenses and permits necessary to conduct its business as it is now being conducted. (d) Except as has been disclosed in writing to Wells Fargo Member, Marketing Member is not a party to any pending or, to the best knowledge of Marketing Member, threatened, claim, action suit, investigation or proceeding, nor is subject to any order, judgment or decree which may have a materially adverse effect on the Marketing Member's assets or business as currently conducted. (e) There are no claims for brokerage or other commissions or finder's or other similar fees in connection with the transactions covered by this Agreement insofar as such claims shall be based on arrangements or agreements made by or on behalf of Marketing Member, and Marketing Member hereby agrees to indemnify and hold harmless Wells Fargo Member from and against all liabilities, costs, damages and expenses from any such claim. Section 12.2 Wells Fargo Member Representations and Warranties. Wells Fargo Member represents and warrants as of the Closing Date that: (a) Wells Fargo Member is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority and licenses to own or lease its property and to carry on its business as it is now being conducted. The execution, delivery and performance of this Agreement by Wells Fargo Member have been duly authorized by all proper action on the part of Wells Fargo Member, and are within its powers and will not conflict with, result in the breach or violation of, constitute a default under, give rise to any right of acceleration or termination under Wells Fargo Member's organizational documents or any indenture, mortgage, lease agreement, contract, order, injunction, judgment, decree or other instrument, rule or regulation to which Wells Fargo Member is a party or by which Wells Fargo Member is bound. This Agreement constitutes the legal, valid and binding obligation of Wells Fargo Member, enforceable against Wells Fargo Member in accordance with its terms. (b) The performance of this Agreement by Wells Fargo Member will not violate or result in a breach of any law or any contract, agreement, note, bond, license or other instrument or obligation to which Wells Fargo Member is a party or by which it is bound or affected or violate any rule or regulation of any administrative agency, or order, writ, injunction or decree of any court, administrative agency or governmental body applicable to it. (c) Wells Fargo Member has obtained and kept in force all material governmental licenses and permits necessary to conduct its business as it is now being conducted. (d) Except as has been disclosed in writing to Marketing Member, Wells Fargo Member is not a party to any pending or, to the best knowledge of Wells Fargo Member, threatened, claim, action suit, investigation or proceeding, nor is subject to any order, judgment or decree which may have a materially adverse effect on the Wells Fargo Member's assets or business as currently conducted. (e) There are no claims for brokerage or other commissions or finder's or other similar fees in connection with the transactions covered by this Agreement insofar as such claims shall be based on arrangements or agreements made by or on behalf of Wells Fargo Member, and Wells Fargo Member hereby agrees to indemnify and hold harmless Marketing Member from and against all liabilities, costs, damages and expenses from any such claim. ARTICLE XIII Miscellaneous Provisions Section 13.1 Notices. Notices, requests, reports, payments, calls or other communications required to be given or made to any Member hereunder shall be in writing and shall be deemed to be given or made 09/15/03 17 when properly addressed and delivered. Delivery may be by registered or certified mail, postage prepaid, or by overnight courier to such Member at such Member's last known address. Addresses shown on the Schedule of Capital Contributions for each Member shall be considered the last known address of such Member unless and until the Company is otherwise notified by such Member in the manner set forth in this Section 13.1. Section 13.2 Nature of Interest of Members. The Interest of each Member in the Company is personal property. Section 13.3 Applicable Law. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, this Agreement, the rights and obligations of the parties hereto, and any claims and disputes relating thereto, shall be subject to and governed by the Act and the other laws of the State of Delaware as applied to agreements among Delaware residents to be entered into and performed entirely within the State of Delaware, and such laws shall govern the limited liability company aspects of this Agreement. Section 13.4 Execution in Counterparts. This Agreement may be executed in one or more counterparts with the effect as if the parties executing the several counterparts had all executed one counterpart, but in such event each such counterpart shall constitute an original and all of such counterparts shall constitute one and the same agreement. Section 13.5 Successors in Interest. Each and all of the covenants, agreements, terms, and provisions of this Agreement shall be binding upon and inure to the benefit of each of the Members and, to the extent permitted by this Agreement, their respective heirs, executors, administrators, personal representatives, successors and assigns. Section 13.6 Severability. Any provision of this Agreement which is invalid, illegal, or unenforceable in any respect in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality, or unenforceability without in any way affecting the validity, legality, or enforceabllity of the remaining provisions hereof, and any such invalidity, illegality, or unenforceability in any jurisdiction shall not invalidate or in any way affect the validity, legality, or enforceability of such provisions in any other jurisdiction. Section 13.7 Headings. The headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Section 13.8 Waiver of Right to Partition. Each of the Members irrevocably waives during the term of the Company any right that such Member may have to maintain any action for partition with respect to the property and assets of the Company. Section 13.9 Arbitration. (a) The Members agree to take all reasonable steps to resolve disputes between them without resorting to arbitration. The Members agree to submit to binding arbitration any and all claims, disputes and controversies between or among them which cannot be resolved without arbitration, whether in tort, contract or otherwise (and their respective employees, officers, directors, attorneys, and other agents) arising out of or relating in any way to this Agreement, any related ancillary documents and their negotiation, execution, administration, modification, extension, substitution, formation, inducement, enforcement, default or termination. However, "Core proceedings" under the United States Bankruptcy Code shall be exempted from arbitration. Should the need arise for such arbitration, the Members agree that the determination of the arbitrator shall be final and shall not be capable of being appealed to any other court or form of resolution. Notwithstanding this prohibition, the Members do agree that the decision of any arbitrator shall be capable of being enforced through an action filed in the appropriate court having jurisdiction. 09/15/03 18 (b) Arbitration under this Agreement shall be governed by the Federal Arbitration Act (Title 9 of the U.S. Code), and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). When the need for selection of an arbitrator shall arise, the Members shall request AAA to supply them with a list of no less than seven (7) arbitrators having no less than five (5) years experience in arbitrating complex business arrangements. Upon receipt of that list of potential arbitrators, each Member shall communicate within 7 days to AAA four (4) arbitrators from the list they would agree to use or their right to participate in the selection of the arbitrator shall be forfeited. As soon as AAA receives the selections from both Members, AAA shall review the selected arbitrators and appoint one of those arbitrators whose name appears on both Members' lists of acceptable arbitrators, AAA shall have the discretion to select the arbitrator from those arbitrators approved by both Members based upon availability and experience and AAA's selection shall be final. The arbitrator shall give effect to statutes or limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator. Each Member shall each pay its own costs and expenses of the arbitration proceeding and the cost of the arbitrator shall be divided equally between the Members. Section 13.10 Confidentiality. (a) The parties agree that the terms of this Agreement shall be maintained in confidence, and shall not be disclosed to any third party, except (i) as is required by law, (ii) pursuant to court order during the course of litigation after notice to the other Member, (iii) for internal communications purposes, (iv) as necessary for tax, accounting, and other regulatory purposes and, (v) as necessary or desirable to facilitate procurement of insurance protection. This clause shall not restrict the release of financial statements of the Company by either party to any third party for regulatory requirements. (b) Marketing Member will hold in confidence all documents and information concerning Wells Fargo Member and its Affiliates furnished to it and its representatives in connection with this Agreement. Marketing Member will not release or disclose such information to any other person, except as required by law or in connection with any proceedings to enforce or construe this Agreement and except its advisers in connection with this Agreement, with the same undertaking from such advisers. If the Company shall not commence operation, such confidence shall be maintained and such information shall not be used in competition with Wells Fargo Member, unless Marketing Member can show that that such information was previously known to Marketing Member, in the public domain, or later acquired from other legitimate sources. Upon request, all such documents and any copies thereof and extracts therefrom shall immediately thereafter be returned to Wells Fargo Member. Upon termination of this Agreement, all confidential documents and information shall be returned upon completion of the liquidation of the Company. (c) Wells Fargo Member will hold in confidence all documents and information concerning Marketing Member and its Affiliates furnished to it and its representatives in connection with this Agreement. Wells Fargo Member will not release or disclose such information to any other person, except as required by law or in connection with any proceedings to enforce or construe this Agreement and except its advisers in connection with this Agreement, with the same undertaking from such advisers. If the Company shall not commence operation, such confidence shall be maintained and such information shall not be used in competition with Marketing Member, unless Wells Fargo Member can show that that such information was previously known to Wells Fargo Member, in the public domain, or later acquired from other legitimate sources. Upon request, all such documents and any copies thereof and extracts therefrom shall immediately thereafter be returned to Marketing Member. Upon termination of this Agreement, all confidential documents and information shall be returned upon completion of the liquidation of the Company. Section 13.11 Publicity. The Members shall consult with each other as to the form and substance of any proposed press release or other proposed public disclosure of matters related to this Agreement or any of the transactions contemplated hereby. 19 9/15/03 Section 13.12 Survival. The provisions of Sections 13.9 and 13.10 shall continue to bind the Members should either withdraw from or otherwise leave the Company and shall survive any termination of this Agreement. IN WITNESS WHEREOF, the Members hereto have executed and delivered this Agreement of Limited Liability Company the day and year first above written. WELLS FARGO VENTURES, LLC ASHTON WOODS USA, LLC By: /s/ JOE JACKSON By: /s/ ROBERT SALOMON ------------------------ -------------------------- Printed Name: Joe Jackson Printed Name: Robert Salomon Title: Senior Vice President Title: Chief Financial Officer 20 9/15/03 EX-10.9 10 g97582a1exv10w9.txt EX-10.9 DOMINION TITLE OF DALLAS L.L.C. MEMBERS AGREEMENT EXHIBIT 10.9 DOMINION TITLE OF DALLAS, L.L.C. MEMBERS' AGREEMENT THIS AGREEMENT, dated JANUARY 21, 2000, is among STEWART TITLE DALLAS, INC., a Texas corporation ("STEWART") and ASHTON DALLAS RESIDENTIAL, L.L.C., a Texas limited liability company ("ASHTON") (all hereinafter sometimes collectively called the "Members" and singly called "Member"), and DOMINION TITLE OF DALLAS, L.L.C., a Texas limited liability company (the "Company"). WHEREAS, the Members are the owners of all of the outstanding ownership interests ("Membership Interest") of the Company, as follows :

Member Membership Interest - ---------- ------------------- STEWART 51% ASHTON 49%

WHEREAS, the Members desire to enter into certain agreements relating to the ownership, voting and transferability of the Membership Interest; NOW, THEREFORE, in consideration of the mutual promises and other valuable considerations, the Members and the Company agree as follows: ARTICLE I. RESTRICTIONS ON TRANSFERABILITY 1.1 General Restrictions on Transferability of Membership Interest. The following restrictions shall apply to all Membership Interests of the Company. These restrictions are in addition to any restrictions in the Regulations ("Regulations") of the Company. 1.2 Specific Restriction on Transferability. Except as hereinafter provided in this Agreement and the Regulations, no Member may make, cause or allow any transfer, sale, passage, assignment, gift, exchange, distribution, transfer, pledge, mortgage, encumbrance or any other disposition of its Membership Interest whatsoever, whether voluntarily or involuntarily or directly or indirectly, except with the written consent of the Company and all other Members. If such consent is given, it shall also be deemed to constitute a vote of all of the remaining Members to continue the business of the Company. Provided, however, that each of Stewart and Ashton shall have the right to transfer its Membership Interest to its parent company, or to any subsidiary or affiliated company which is controlled by Stewart and/or its parent company, or Ashton and/or its parent company, respectively, without triggering any of the provisions of this Agreement as long as such transferee corporation executes and agrees to be bound by the provisions of this Member's Agreement. Notwithstanding the foregoing, in the event: (a) a Member receives a bona fide offer in writing to purchase any Membership Interest owned by such Member or any part thereof which such Member is willing to accept; (b) a Member entity is dissolved, liquidated or merged where the Member entity is not the surviving entity; (c) the controlling shareholder(s) or member(s) of a Member changes; (d) any Membership Interest owned by a Member becomes subject to an involuntary disposition, including, without limitation, any disposition pursuant to or by reason of or under judicial order, legal or equitable process, execution, attachment or enforcement of a pledge, trust or other security interest or encumbrance; or (e) a Member (i) files an application for, or consents to, the appointment of a trustee of such Member's assets, (ii) files a voluntary petition in bankruptcy or files a pleading in any court of record admitting in writing such Member's inability to pay debts as they come due, (iii) makes a general assignment for the benefit of creditors, (iv) files an answer admitting the material allegations of, consents to, or defaults in answering a bankruptcy petition filed against such Member in any bankruptcy proceeding or (v) has an order, judgment or decree by any court of competent jurisdiction entered against such Member adjudicating such Member as bankrupt or appointing a trustee of such Member's assets and such order, judgment or decree is not dismissed within ninety (90) days after its issuance; and all the remaining Members consent to continue the business of the Company, then, unless the Company and the other Members agree in writing otherwise, all of the Membership Interest owned by such Member, or that portion of the Membership Interest so affected, shall be automatically subject to the purchase options as provided in this Agreement, any written notification requirement is waived, and there is an automatic requirement to offer to sell such Membership Interest upon the happening of the above described events. Failure to send any written notification does not terminate or invalidate the automatic requirement to offer to sell such Membership Interest as provided in this Agreement. 2 1.3 Requirements of Offer. If any Member or its legal representative is required to extend the purchase option as provided in this Agreement, such Member or its legal representative (hereinafter referred to as the "Offering Member") shall offer in writing to sell such Membership Interest to the Company by notice to the Secretary of the Company. 1.4 Offer to the Company. On or before the expiration of thirty (30) days from the date of receipt by the Company of the aforesaid notification, the Secretary of the Company shall certify in writing to the Offering Member the percentage, if any, of such Offering Member's Membership Interest which has been elected to be purchased by the Company pursuant to the provisions hereof, and the Secretary shall deliver to the Offering Member the total purchase price thereof, at which time the sale of such Membership Interest and all rights incident to ownership thereof shall be deemed to occur. The Secretary shall thereupon cause proper notation to be made in the books and records of the Company. 1.5 Offer to the Other Members. If the Company elects not to purchase all or any part of the Membership Interest of the Offering Member in accordance with the terms of this Agreement, on or before thirty (30) days after receipt of the written offer, the Secretary of the Company shall, by writing deposited in the United States mails with postage prepaid, notify each of the other Members (other than the Offering Member) as of the date of the receipt of notice by the Secretary that the Offering Member has offered to sell some or all of its Membership Interest, pursuant to the provisions of this Agreement, stating the name of such Offering Member and the Membership Interest available for purchase by the other Members. The other Members shall have thirty (30) days from the date of mailing of such notification by the Secretary within which to exercise their right to purchase all or any part of the offered Membership Interest that they may purchase pursuant to the provisions of this Agreement. 1.6 Consummation of Sales. At the expiration of thirty (30) days from the date of sending the aforesaid notification to said Members, the Secretary of the Company shall then certify in writing to the Offering Member the percentage, if any, of such Offering Member's Membership Interest which has been elected to be purchased by the other Members pursuant to the provisions hereof, and the Secretary shall deliver to the Offering Member the total purchase price thereof, at which time the sale of said Membership Interest and all rights incident to ownership thereof shall deem to occur. The Secretary shall thereupon cause proper notation to be made in the books of the Company to reflect such transfer. 1.7 Failure to Purchase Entire Membership Interest Offered. If, upon completion of the procedure described above, all of the Membership Interest has not been sold, the Offering Member shall 3 have the right for a period of thirty (30) days after the expiration of the time periods heretofore described to transfer any remaining unsold Membership Interest that had theretofore been offered pursuant to the provisions hereof. Notwithstanding the preceding sentence, no sale, transfer, pledge, assignment or other disposition shall be effective unless and until the transferee executes and delivers to the Company an agreement in respect of the Membership Interest to be transferred to such transferee, which agreement shall be substantially in the form of this Agreement with such modifications as the Company determines to be appropriate. If the ownership of the offered Membership Interest is not transferred to a third party before the expiration of the thirty (30) day period, such Membership Interest shall again be subject to the restrictions of transferability provided in this Agreement. ARTICLE II. PURCHASE PRICE 2.1 Purchase Price Under Section 1.2(a) - Bona Fide Offers. In connection with any purchase of any Membership Interest owned by a Member (hereinafter called the "Selling Member") by the Company or any other Members pursuant to this Agreement as a result of an offer made to the Company or such other Members arising out of a bona fide offer in writing received by the Selling Member (as described in Section 1.2(a) hereof), the price which the Company or such other Members shall pay for such Membership Interest shall be the same price that the bona fide offeror for such Membership Interest shall have so offered for such Membership Interest. The purchase price determined pursuant to the provisions of this Section 2.1 shall be paid on the same terms as the bona fide offer. 2.2 Purchase Price - Generally. In connection with any other purchase of a Membership Interest owned by any Selling Member, by the Company or any other Member under Sections 1.2(b)-(e), the purchase price per percentage of Membership Interest for such Membership Interest shall be the Fair Value of such Membership Interest as defined in Section 2.4 below. 2.3 Determination Date. As used herein, "Determination Date" means, in connection with any offer or any event which causes an offer for sale of the Membership Interest owned by a Selling Member pursuant to this Agreement, the date upon which the Selling Member or its legal representative delivers to the Secretary of the Company notice of its offer in writing of such Membership Interest, or if no such notice is delivered, the date of occurrence of the event or the determination by the Managers of the Company of the existence of the condition which subjects the Selling Member's Membership Interest to such offer, as the case may be. 4 2.4 Determination and Payment of Purchase Price. (a) Except as otherwise provided in Section 2.1 hereof, the purchase price to be paid for the purchase of a Membership Interest of the Company pursuant to this Agreement shall be determined from unaudited financial statements of the Company at the date and for the period indicated in the foregoing provisions hereof, prepared by the Company's independent public accountants in accordance with generally accepted accounting principles consistently applied. "Fair Value" of each percentage of Membership Interest shall be determined by multiplying the average Net Pre-Tax Earnings per percentage of Membership Interest of the Company for the completed full five (5) fiscal years immediately preceding the exercise of the right of first refusal, by four (4). If the purchase price has to be determined pursuant to this Section 2.4(a) before the expiration of five (5) full fiscal years of the Company, then the Net Pre-Tax Earnings of the Company shall be determined by adding the Net Pre-Tax Earnings of the Company for each year prior to the Determination Date and dividing the total by the number of actual full fiscal years lapsed; provided, however, that if the Company shall be in the third or forth quarter of its current fiscal year at the time the purchase price has to be determined pursuant to this Section 2.4(a), the Net Pre-Tax Earnings for such most recent fiscal year shall be determined (and used as the amount for one fiscal year in the above calculation) by dividing the amount of the Net Pre-Tax Earnings for the current fiscal year (up to and including the last complete month) by the number of complete months of such fiscal year and multiplying such amount by twelve. (b) "Net Pre-Tax Earnings" shall be calculated in accordance with generally accepted accounting principles, consistently applied. (c) Except as provided in Section 2.1 hereof, such purchase price shall be payable, at the election of the purchaser of such Membership Interest, in cash upon consummation of such purchase, or at least ten percent (10%) in cash upon consummation of such purchase and the balance thereof evidenced by a promissory note of such purchaser, payable to the seller of such Membership Interest of such principal amount. Such promissory note shall be payable, at the election of such purchaser, in up to five (5) equal annual installments of principal which shall be due and payable on the succeeding anniversary dates of the making thereof, and shall bear interest at the prime rate of interest published in the Wall Street Journal, Southwest Edition, in effect on the applicable Determination Date. Such promissory note, or any portion thereof, may be prepaid without penalty. 5 ARTICLE III. MAJOR DECISIONS Subject to the additional requirements in Subsection (c) below, the Company shall not undertake the following actions without an affirmative vote of seventy percent (70%) or more of the Membership Interest of the Company: (a) Distributions. Except as hereinafter provided in this Paragraph (a), make any distribution, either directly or indirectly, and whether in cash or property or an obligation of the Company. Notwithstanding the foregoing, from time to time (but at least once each calendar month), the Managers shall determine in their reasonable judgment to what extent the Company's cash on hand exceeds its current and anticipated needs, including, without limitation, for operating expenses for thirty days, debt service, immediate capital expenditures and reasonable contingency reserves. If such an excess exists, the Mangers shall cause the Company to distribute to the members in the same ratio as profits and losses of the Company, an amount in cash equal to that excess. From time to time, the Managers also may cause property of the Company other than cash to be distributed to the members, which distribution must be made, in the same ratio as profits and losses of the Company, and may be made subject to existing liabilities and obligations. Immediately prior to such a distribution, the capital accounts of the members shall be adjusted as provided in Treas. Reg. Section. 1.704-1(b)(2)(iv)(f). (b) Prohibition of Mergers, Sales of Assets, Etc. The Company will not, and will not cause or permit any subsidiary to, (i) merge or consolidate with another entity, (ii) sell, lease, exchange or otherwise dispose of all or substantially all of its assets or (iii) enter into or effect a recapitalization or reorganization. (c) Amendment to Corporate Documents. The Company shall not amend its Articles of Organization, Regulations or this Member's Agreement. Provided, however, that amendments of Sections 5.4 (Additional Contributions), 5.8 (Transfer and Assignability of Membership Interest), 5.9 (Resignation of Member) and Article XI (Amendments) of the Regulations and of Sections 1.1 (General Restrictions on Transferability of Membership Interest) and 1.2 (Specific Restriction) of this Members, Agreement require the consent of all Members. 6 (d) Incurring Debt. The Company shall not borrow, mortgage any Company assets, enter into any financing and/or credit facility agreement, excluding trade accounts payable incurred in the ordinary course of business, for an amount equal or superior to FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) in the aggregate in any one (1) year. (e) Member Loans. The Company shall not borrow any funds from a Member except pursuant to Section 5.5(a) of the Regulations. (f) Underwriter. The Company shall not use any title underwriter other than Stewart Title Guaranty Company. (g) Title Examination Fee Agreements. The Company shall not enter into, modify or terminate any title examination fee agreements with Stewart or with any other title agents. ARTICLE IV. COVENANTS OF THE MEMBERS The Members agree that for as long hereafter as any Member shall own a Membership Interest: (a) Access to Information. The Company shall give to each Member, such Member's counsel, accountants and other representatives, access at reasonable times during normal business hours to all of the properties, books and records of the Company, and shall furnish each such Member with such information concerning the Company as such Member may reasonably request. (b) Financial Statements and Budgets. The Company shall complete the financial statements for each month within five (5) business days after the end of such month and shall furnish them within fifteen (15) business days after the end of each month to each member. The financial statements shall be reviewed by the members on a quarterly basis. The Company shall also prepare, and furnish to the members, an annual budget, which shall be updated quarterly with regard to the Company's progress against the budget. (c) Business With Members. The Company shall be permitted to transact business with any Member, provided the transaction is competitive within the industry, and the Member receives no preferential benefit. 7 ARTICLE V. VOTING AGREEMENT The Members agree to vote their membership interest in favor of: (a) the election of a number of persons designated by Ashton equal to at least 40% of the total number of managers of the Company; and (b) The election of a number of persons designated by Stewart equal to the remaining number of managers of the Company. ARTICLE VI. DISSOLUTION AND NON-COMPETITION 6.1 Dissolution. In addition to the events of dissolution set forth in Section 10.1 of the Regulations of the Company, any Member may cause the dissolution of the Company for any reason, after the Company has been in existence for at least nine (9) months, by giving ninety (90) days' written notice to the other Members at the addresses set forth below. 6.2 Non-Competition. (a) Margin Below 20%. If Ashton elects to dissolve the Company as set forth in Section 6.1 above and the Margin (as defined below) has been below twenty percent (20%) for any four (4) of the immediately preceding eight (8) consecutive months before the notice of dissolution is given, Ashton agrees not to invest, directly or indirectly, in any title insurance company or title agent in the Dallas - Fort Worth Metroplex for three (3) months after the dissolution of the Company. (b) Generally. If Ashton elects to dissolve the Company pursuant to Section 6.1 and subsection 6.2(a) does not apply, Ashton agrees not to invest, directly or indirectly, in any title insurance company or title agent in the Dallas - Fort Worth Metroplex for three (3) months after the dissolution of the Company. (c) Dissolution by Stewart. The foregoing non-compete provisions shall not apply in the event Stewart elects to cause the dissolution pursuant to Section 6.1 above. (d) Definition of Margin. The term "Margin" shall mean pre-tax income divided by the net revenues of the Company. 8 6.3 Rights to Name. The parties hereby acknowledge that (a) in the event the Company is dissolved, Stewart shall not have the right to use the word "Dominion" in the corporate name of any title insurance company or title agent, which is doing business in the Dallas - Fort Worth Metroplex and is controlled by Stewart, for a period of two (2) years from the date the Articles of Dissolution of the Company are filed in the Secretary of State's office; and (b) as long as Ashton (or an affiliate or parent company) is a member of the Company and for a period of two (2) years after a dissolution of the Company, neither Ashton nor any entity controlling Ashton, or controlled by, or affiliated with, Ashton shall have the right to organize, form, participate or otherwise become, directly or indirectly, involved with any title insurance company or title agent with the name "Dominion Title, L.L.C." or a deceptively similar name (as defined by the Secretary of State of Texas) in the Dallas - Fort Worth Metroplex. ARTICLE VII. MISCELLANEOUS 7.1 Conflict with Regulations. In case of a conflict of a provision of this Agreement with any provision set forth in the Regulations of the Company, the provisions of this Agreement shall prevail. 7.2 Specific Performance; Attorneys' Fees. Should any Member fail or refuse to comply with any of the terms and provisions of this Agreement, the same may be enforced by specific performance. Should it be necessary to retain legal counsel to enforce the terms and provisions hereof, the defaulting Member shall be charged with all responsibility for legal fees, arbitration expense, court costs and litigation expenses incurred in the enforcement of this Agreement. 7.3 Benefit. This Agreement shall be binding upon and shall operate for the benefit of the Member and their respective executors, administrators, successors and assigns. 7.4 Entire Agreement and Amendments. This Agreement contains the entire Agreement between the parties with respect to the subject matter hereunder and no waiver, alteration or modification of any of the provisions hereof shall be binding unless it is in writing and consented to by the Members as set forth in Subsection 3(c) above. 9 7.5 Governing Law. This Agreement shall be governed by the laws of the State of Texas. Any suits arising under this Agreement shall be brought in Dallas County, Texas. 7.6 Severability. In case any term, phrase, clause, paragraph, section restriction, covenant or agreement contained in this Agreement shall be held to be invalid or unenforceable, the same shall be deemed and it is hereby agreed that the same is meant to be severable, and shall not defeat or impair the remaining provisions hereof. 7.7 Waiver. The waiver by any party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent or continuing breach of this Agreement by such other party. 7.8 Assignability. This Agreement shall not be assigned by any party without the prior consent of all other parties. 7.9 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been delivered on the date personally delivered or on the date mailed, by registered or certified mail (return receipt requested, postage prepaid, if addressed to the parties at the addresses set forth opposite their respective signatures at the end of this Agreement. Any party hereto may designate a different address by providing notice of such new address to the other parties hereto. 7.10 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the date and year first above written. THE COMPANY: DOMINION TITLE OF DALLAS, L.L.C. By: /s/ John W. Mahoney ------------------------------ Printed Name: John W. Mahoney Title: President Address: ________________________ ________________________ 10 THE MEMBERS: STEWART TITLE DALLAS, INC. By: /s/ John M. McCain ------------------------------ Printed Name: John M. McCain Title: Executive Vice President Address: _________________________ ________________________ ASHTON DALLAS RESIDENTIAL, L.L.C. By: /s/ Stephanie MacLean ------------------------------ Printed Name: Stephanie MacLean Title: _______________________ Address: _______________________ _______________________ 11 EX-10.10 11 g97582a1exv10w10.txt EX-10.10 DOMINION TITLE, LLC MEMBERS' AGREEMENT EXHIBIT 10.10 DOMINION TITLE, L.L.C. MEMBERS' AGREEMENT THIS AGREEMENT, dated June 7, 1999, is among STEWART TITLE COMPANY, a Texas corporation ("STEWART") and DALTOR HOUSTON TITLE, INC., a Texas corporation ("DALTOR") (all hereinafter sometimes collectively called the "Members" and singly called "Member"), and DOMINION TITLE, L.L.C., a Texas limited liability company (the "Company"). WHEREAS, the Members are the owners of all of the outstanding ownership interests ("Membership Interest") of the Company, as follows:

Member Membership Interest - ------ ------------------- STEWART 51% DALTOR 49%

WHEREAS, the Members desire to enter into certain agreements relating to the ownership, voting and transferability of the Membership Interest; NOW, THEREFORE, in consideration of the mutual promises and other valuable considerations, the Members and the Company agree as follows: ARTICLE I. RESTRICTIONS ON TRANSFERABILITY 1.1 General Restrictions on Transferability of Membership Interest. The following restrictions shall apply to all Membership Interests of the Company. These restrictions are in addition to any restrictions in the Regulations ("Regulations") of the Company. 1.2 Specific Restriction on Transferability. Except as hereinafter provided in this Agreement and the Regulations, no Member may make, cause or allow any transfer, sale, passage, assignment, gift, exchange, distribution, transfer, pledge, mortgage, encumbrance or any other disposition of its Membership Interest whatsoever, whether voluntarily or involuntarily or directly or indirectly, except with the written consent of the Company and all other Members. If such consent is given, it shall also be deemed to constitute a vote of all of the remaining Members to continue the business of the Company. Provided, however, that each of Stewart and DALTOR shall have the right to transfer its Membership Interest to its parent company, or to any subsidiary or affiliated company which is controlled by Stewart and/or its parent company, or DALTOR and/or its parent company, respectively, without triggering any of the provisions of this Agreement as long as such transferee corporation executes and agrees to be bound by the provisions of this Members' Agreement. Notwithstanding the foregoing, in the event: (a) a Member receives a bona fide offer in writing to purchase any Membership Interest owned by such Member or any part thereof which such Member is willing to accept; (b) a Member corporation is dissolved, liquidated or merged where the Member corporation is not the surviving corporation; (c) the controlling shareholder(s) of a Member changes; (d) any Membership Interest owned by a Member becomes subject to an involuntary disposition, including, without limitation, any disposition pursuant to or by reason of or under judicial order, legal or equitable process, execution, attachment or enforcement of a pledge, trust or other security interest or encumbrance; or (e) a Member (i) files an application for, or consents to, the appointment of a trustee of such Member's assets, (ii) files a voluntary petition in bankruptcy or files a pleading in any court of record admitting in writing such Member's inability to pay debts as they come due, (iii) makes a general assignment for the benefit of creditors, (iv) files an answer admitting the material allegations of, consents to, or defaults in answering a bankruptcy petition filed against such Member in any bankruptcy proceeding or (v) has an order, judgment or decree by any court of competent jurisdiction entered against such Member adjudicating such Member as bankrupt or appointing a trustee of such Member's assets and such order, judgment or decree is not dismissed within ninety (90) days after its issuance; and all the remaining Members consent to continue the business of the Company, then, unless the Company and the other Members agree in writing otherwise, all of the Membership Interest owned by such Member, or that portion of the Membership Interest so affected, shall be automatically subject to the purchase options as provided in this Agreement, any written notification requirement is waived, and there is an automatic requirement to offer to sell such Membership Interest upon the happening of the above described events. Failure to send any written notification does not terminate or invalidate the automatic requirement to offer to sell such Membership Interest as provided in this Agreement. 2 1.3 Requirements of Offer. If any Member or its legal representative is required to extend the purchase option as provided in this Agreement, such Member or its legal representative (hereinafter referred to as the "Offering Member") shall offer in writing to sell such Membership Interest to the Company by notice to the Secretary of the Company. 1.4 Offer to the Company. On or before the expiration of thirty (30) days from the date of receipt by the Company of the aforesaid notification, the Secretary of the Company shall certify in writing to the Offering Member the percentage, if any, of such Offering Member's Membership Interest which has been elected to be purchased by the Company pursuant to the provisions hereof, and the Secretary shall deliver to the Offering Member the total purchase price thereof, at which time the sale of such Membership Interest and all rights incident to ownership thereof shall be deemed to occur. The Secretary shall thereupon cause proper notation to be made in the books and records of the Company. 1.5 Offer to the Other Members. If the Company elects not to purchase all or any part of the Membership Interest of the Offering Member in accordance with the terms of this Agreement, on or before thirty (30) days after receipt of the written offer, the Secretary of the Company shall, by writing deposited in the United States mails with postage prepaid, notify each of the other Members (other than the Offering Member) as of the date of the receipt of notice by the Secretary that the Offering Member has offered to sell some or all of its Membership Interest, pursuant to the provisions of this Agreement, stating the name of such Offering Member and the Membership Interest available for purchase by the other Members. The other Members shall have thirty (30) days from the date of mailing of such notification by the Secretary within which to exercise their right to purchase all or any part of the offered Membership Interest that they may purchase pursuant to the provisions of this Agreement. 1.6 Consummation of Sales. At the expiration of thirty (30) days from the date of sending the aforesaid notification to said Members, the Secretary of the Company shall then certify in writing to the Offering Member the percentage, if any, of such Offering Member's Membership Interest which has been elected to be purchased by the other Members pursuant to the provisions hereof, and the Secretary shall deliver to the Offering Member the total purchase price thereof, at which time the sale of said Membership Interest and all rights incident to ownership thereof shall deem to occur. The Secretary shall thereupon cause proper notation to be made in the books of the Company to reflect such transfer. 1.7 Failure to Purchase Entire Membership Interest Offered. If, upon completion of the procedure described above, all of the Membership Interest has not been sold, the Offering Member shall 3 have the right for a period of thirty (30) days after the expiration of the time periods heretofore described to transfer any remaining unsold Membership Interest that had theretofore been offered pursuant to the provisions hereof. Notwithstanding the preceding sentence, no sale, transfer, pledge, assignment or other disposition shall be effective unless and until the transferee executes and delivers to the Company an agreement in respect of the Membership Interest to be transferred to such transferee, which agreement shall be substantially in the form of this Agreement with such modifications as the Company determines to be appropriate. If the ownership of the offered Membership Interest is not transferred to a third party before the expiration of the thirty (30) day period, such Membership Interest shall again be subject to the restrictions of transferability provided in this Agreement. ARTICLE II. PURCHASE PRICE 2.1 Purchase Price Under Section 1.2 (a) - Bona Fide Offers. In connection with any purchase of any Membership Interest owned by a Member (hereinafter called the "Selling Member" by the Company or any other Members pursuant to this Agreement as a result of an offer made to the Company or such other Members arising out of a bona fide offer in writing received by the Selling Member (as described in Section 1.2 (a) hereof), the price which the Company or such other Members shall pay for such Membership Interest shall be the same price that the bona fide offeror for such Membership Interest shall have so offered for such Membership Interest. The purchase price determined pursuant to the provisions of this Section 2.1 shall be paid on the same terms as the bona fide offer. 2.2 Purchase Price - Generally. In connection with any other purchase of a Membership Interest owned by any Selling Member, by the Company or any other Member under Sections 1.2(b)-(e), the purchase price per percentage of Membership Interest for such Membership Interest shall be the Fair Value of such Membership Interest as defined in Section 2.4 below. 2.3 Determination Date. As used herein, "Determination Date" means, in connection with any offer or any event which causes an offer for sale of the Membership Interest owned by a Selling Member pursuant to this Agreement, the date upon which the Selling Member or its legal representative delivers to the Secretary of the Company notice of its offer in writing of such Membership Interest, or if no such notice is delivered, the date of occurrence of the event or the determination by the Managers of the Company of the existence of the condition which subjects the Selling Member's Membership Interest to such offer, as the case may be. 4 2.4 Determination and Payment of Purchase Price. (a) Except as otherwise provided in Section 2.1 hereof, the purchase price to be paid for the purchase of a Membership Interest of the Company pursuant to this Agreement shall be determined from unaudited financial statements of the Company at the date and for the period indicated in the foregoing provisions hereof, prepared by the Company's independent public accountants in accordance with generally accepted accounting principles consistently applied. "Fair Value" of each percentage of Membership Interest shall be determined by multiplying the average Net Pre-Tax Earnings per percentage of Membership Interest of the Company for the completed full five (5) fiscal years immediately preceding the exercise of the right of first refusal, by four (4). If the purchase price has to be determined pursuant to this Section 2.4(a) before the expiration of five (5) full fiscal years of the Company, then the Net Pre-Tax Earnings of the Company shall be determined by adding the Net Pre-Tax Earnings of the Company for each year prior to the Determination Date and dividing the total by the number of actual full fiscal years lapsed; provided, however, that if the Company shall be in the third or forth quarter of its current fiscal year at the time the purchase price has to be determined pursuant to this Section 2.4(a), the Net Pre-Tax Earnings for such most recent fiscal year shall be determined (and used as the amount for one fiscal year in the above calculation) by dividing the amount of the Net Pre-Tax Earnings for the current fiscal year (up to and including the last complete month) by the number of complete months of such fiscal year and multiplying such amount by twelve. (b) "Net Pre-Tax Earnings" shall be calculated in accordance with generally accepted accounting principles, consistently applied. (c) Except as provided in Section 2.1 hereof, such purchase price shall be payable, at the election of the purchaser of such Membership Interest, in cash upon consummation of such purchase, or at least ten percent (10%) in cash upon consummation of such purchase and the balance thereof evidenced by a promissory note of such purchaser, payable to the seller of such Membership Interest of such principal amount. Such promissory note shall be payable, at the election of such purchaser, in up to five (5) equal annual installments of principal which shall be due and payable on the succeeding anniversary dates of the making thereof, and shall bear interest at the prime rate of interest published in the Wall Street Journal, Southwest Edition, in effect on the applicable Determination Date. Such promissory note, or any portion thereof, may be prepaid without penalty. 5 ARTICLE III. MAJOR DECISIONS Subject to the additional requirements in Subsection (c) below, the Company shall not undertake the following actions without an affirmative vote of seventy percent (70%) or more of the Membership Interest of the Company: (a) Distributions. Except as hereinafter provided in this Paragraph (a), make any distribution, either directly or indirectly, and whether in cash or property or an obligation of the Company. Notwithstanding the foregoing, from time to time (but at least once each calendar month), the Managers shall determine in their reasonable judgment to what extent the Company's cash on hand exceeds its current and anticipated needs, including, without limitation, for operating expenses for thirty days, debt service, immediate capital expenditures and reasonable contingency reserves. If such an excess exists, the Managers shall cause the Company to distribute to the members in the same ratio as profits and losses of the Company, an amount in cash equal to that excess. From time to time, the Managers also may cause property of the Company other than cash to be distributed to the members, which distribution must be made, in the same ratio as profits and losses of the Company, and may be made subject to existing liabilities and obligations. Immediately prior to such a distribution, the capital accounts of the members shall be adjusted as provided in Treas. Reg. Section 1.704-1(b)(2)(iv)(f). (b) Prohibition of Mergers, Sales of Assets, Etc. The Company will not, and will not cause or permit any subsidiary to, (i) merge or consolidate with another entity, (ii) sell, lease, exchange or otherwise dispose of all or substantially all of its assets or (iii) enter into or effect a recapitalization or reorganization. (c) Amendment to Corporate Documents. The Company shall not amend its Articles of Organization, Regulations or this Member's Agreement. Provided, however, that amendments of Sections 5.4 (Additional Contributions), 5.8 (Transfer and Assignability of Membership Interest), 5.9 (Resignation of Member) and Article XI (Amendments) of the Regulations and of Sections 1.1 (General Restrictions on Transferability of Membership Interest) and 1.2 (Specific Restriction) of this Members' Agreement require the consent of all Members. 6 (d) Incurring Debt. The Company shall not borrow, mortgage any Company assets, enter into any financing and/or credit facility agreement, excluding trade accounts payable incurred in the ordinary course of business, for an amount equal or superior to FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) in the aggregate in any one (1) year. (e) Member Loans. The Company shall not borrow any funds from a Member except pursuant to Section 5.5(a) of the Regulations. (f) Underwriter. The Company shall not use any title underwriter other than Stewart Title Guaranty Company. (g) Title Examination Fee Assignments. The Company shall not enter into, modify or terminate any title examination fee agreements with Stewart or with any other title agents. ARTICLE IV. COVENANTS OF THE MEMBERS The Members agree that for as long hereafter as any Member shall own a Membership Interest: (a) Access to Information. The Company shall give to each Member, such Member's counsel, accountants and other representatives, access at reasonable times during normal business hours to all of the properties, books and records of the Company, and shall furnish each such Member with such information concerning the Company as such Member may reasonably request. (b) Financial Statements and Budgets. The Company shall complete the financial statements for each month within five (5) business days after the end of such month and shall furnish them within fifteen (15) business days after the end of each month to each member. The financial statements shall be reviewed by the members on a quarterly basis. The Company shall also prepare, and furnish to the members, an annual budget, which shall be updated quarterly with regard to the Company's progress against the budget. (c) Business With Members. The Company shall be permitted to transact business with any Member, provided the transaction is competitive within the industry, and the Member receives no preferential benefit. 7 ARTICLE V. VOTING AGREEMENT The Members agree to vote their membership interest in favor of; (a) the election of a number of persons designated by DALTOR equal to at least 40% of the total number of managers of the Company; and (b) The election of a number of persons designated by STEWART equal to the remaining number of managers of the Company. ARTICLE VI. DISSOLUTION AND NON-COMPETITION 6.1 Dissolution. In addition to the events of dissolution set forth in Section 10.1 of the Regulations of the Company, any Member may cause the dissolution of the Company for any reason, after the Company has been in existence for at least nine (9) months, by giving ninety (90) days' written notice to the other Members at the addresses set forth below. 6.2 Non Competition. (a) Margin Below 20%. If DALTOR elects to dissolve the Company as set forth in Section 6.1 above and the Margin (as defined below) has been below twenty percent (20%) for any four (4) of the immediately preceding eight (8) consecutive months before the notice of dissolution is given, DALTOR agrees not to invest, directly or indirectly, in any title insurance company or title agent in the Greater Houston Metropolitan Area for six (6) months after the dissolution of the Company. (b) Generally. If DALTOR elects to dissolve the Company pursuant to Section 6.1 and subsection 6.2(a) does not apply, DALTOR agrees not to invest, directly or indirectly, in any title insurance company or title agent in the Greater Houston Metropolitan Area for twelve (12) months after the dissolution of the Company. (c) Dissolution by Stewart. The foregoing non-compete provisions shall not apply in the event STEWART elects to cause the dissolution pursuant to Section 6.1 above. (d) Definition of Margin. The term "Margin" shall mean pre-tax income divided by the net revenues of the Company. 8 6.3 Rights to Name. The parties hereby acknowledge that (a) in the event the Company is dissolved, STEWART shall not have the right to use the word "Dominion" in the corporate name of any title insurance company or title agent, which is doing business in the Greater Houston Metropolitan Area and is controlled by STEWART, for a period of two (2) years from the date the Articles of Dissolution of the Company are filed in the Secretary of State's office; and (b) as long as DALTOR (or an affiliate or parent company) is a member of the Company and for a period of two (2) years after a dissolution of the Company, neither DALTOR nor any entity controlling DALTOR, or controlled by, or affiliated with, DALTOR shall have the right to organize, form, participate or otherwise become, directly or indirectly, involved with any title insurance company or title agent with the name "Dominion Title, L.L.C." or a deceptively similar name (as defined by the Secretary of State of Texas) in the Greater Houston Metropolitan Area. ARTICLE VII. MISCELLANEOUS 7.1 Conflict with Regulations. In case of a conflict of a provision of this Agreement with any provision set forth in the Regulations of the Company, the provisions of this Agreement shall prevail. 7.2 Specific Performance; Attorneys' Fees. Should any Member fail or refuse to comply with any of the terms and provisions of this Agreement, the same may be enforced by specific performance. Should it be necessary to retain legal counsel to enforce the terms and provisions hereof, the defaulting Member shall be charged with all responsibility for legal fees, arbitration expense, court costs and litigation expenses incurred in the enforcement of this Agreement. 7.3 Benefit. This Agreement shall be binding upon and shall operate for the benefit of the Member and their respective executors, administrators, successors and assigns. 7.4 Entire Agreement and Amendments. This Agreement contains the entire Agreement between the parties with respect to the subject matter hereunder and no waiver, alteration or modification of any of the provisions hereof shall be binding unless it is in writing and consented to by the Members as set forth in Subsection 3(c) above. 2. 9 7.5 Governing Law. This Agreement shall be governed by the laws of the State of Texas. Any suits arising under this Agreement shall be brought in Harris County, Texas. 7.6 Severability. In case any term, phrase, clause, paragraph, section restriction, covenant or agreement contained in this Agreement shall be held to be invalid or unenforceable, the same shall be deemed and it is hereby agreed that the same is meant to be severable, and shall not defeat or impair the remaining provisions hereof. 7.7 Waiver. The waiver by any party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent or continuing breach of this Agreement by such other party. 7.8 Assignability. This Agreement shall not be assigned by any party without the prior consent of all other parties. 7.9 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been delivered on the date personally delivered or on the date mailed, by registered or certified mail return receipt requested, postage prepaid, if addressed to the parties at the addresses set forth opposite their respective signatures at the end of this Agreement. Any party hereto may designate a different address by providing notice of such new address to the other parties hereto. 7.10 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the date and year first above written. THE COMPANY: DOMINION TITLE, L.L.C. By: /s/ MARY ALICE GONZALEZ Printed Name: Mary Alice Gonzalez Title: President Address: 14100 Southwest Frwy, Suite 200-A Sugar Land, TX 77478 10 THE MEMBERS: STEWART TITLE COMPANY By: /s/ STEWART MORRIS, JR. ----------------------------- Printed Name: Stewart Morris, Jr. Title: President Address: 1980 Post Oak Boulevard Houston, Texas 77055 DALTOR HOUSTON TITLE, INC, By: /s/ [ILLEGIBLE] ----------------------------- Printed Name: [ILLEGIBLE] Title: Authorized Representative Address: [ILLEGIBLE] Houston, Texas 77074 11 EX-10.11 12 g97582a1exv10w11.txt EX-10.11 ASSIGNMENT OF MEMBERSHIP INTEREST Exhibit 10.11 ASSIGNMENT OF MEMBERSHIP INTEREST This ASSIGNMENT OF MEMBERSHIP INTEREST is entered into effective as of the 1st day of June, 2002, by and between DALTOR HOUSTON TITLE, INC., a Texas corportation {"Assignor"), and ASHTON HOUSTON RESIDENTIAL, LLC., a Texas limited liability company ("Assignee"). WHEREAS, Assignor currently owns a forty-nine percent (49%) membership interest {the "Membership Interest") in DOMINION TITLE, L.L.C., a Texas limited liability company (the "Company"); WHEREAS, Assignor desires to assign all of its right, title and interest to the Membership Interest to Assignee; WHEREAS, Assignor and Assignee acknowledge and have represented to the other Member of the Company that they are affiliated companies as set forth in Section 1.2 of the Members' Agreement of the Company, dated June 7, 1999 (the "Members' Agreement"); WHEREAS, Assignee has consented to such assignment and has agreed to be bound by the Regulations of the Company, dated June 7,1999 (the "Regulations"), and the Members' Agreement; and, WHEREAS, all of the Members of the Company have consented to such assignment and transfer of membership interest; NOW, THEREFORE, in consideration of the mutal benefits to be derived by the parties herein, it is agreed as follows: 1. Assignor hereby transfers, conveys and assigns all of its right, title and interest in the Membership Interest to Assignee. 2. Assignee hereby accepts such assignment. 3. As additional consideration for the transfer of the Membership Interest, Assignee hereby agrees to be bound by all of the provisions of the Regulations and the Members' Agreement in all regards as of it had been an original signatory thereof. EXECUTED effective as of the date first written above. ASSIGNOR: DALTOR HOUSTON TITLE, INC. By: /s/ Robert L. Salomon Name: Robert L. Salomon Title: Authorized Representative ASSIGNEE: ASHTON HOUSTON RESIDENTIAL, L.L.C. By: /s/ Robert L. Salomon Name: Robert L. Salomon Title: Authorized Representative AGREED: STEWART TITLE COMPANY By: /s/ E.D. LESTER Name: E.D. Lester Title: ILLEGIBLE Date: 10-1-02 EX-10.12 13 g97582a1exv10w12.txt EX-10.12 PROMISSORY NOTE TO JOHN SHARP Exhibit 10.12 PROMISSORY NOTE ("Note") $5,700,000.00 Orlando, Florida As of April 27, 2004 THE UNDERSIGNED, ("Maker"), promises to pay to the order of JOHN SHARP ("Payee"), whose mailing address is 700 Clay Street, Winter Park, Florida 32789, the principal sum of FIVE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($5,700,000.00), with interest on the unpaid principal from the date hereof at the following rate and payable in the following manner: (a) The interest rate shall be a fixed rate equal to seven percent (7.00%) per annum. (b) Principal shall be paid in five (5) equal annual installments of One Million and No/100 Dollars ($1,000,000.00) plus interest commencing April 27, 2005 and each April 27th thereafter until the Maturity Date. (c) The entire unpaid principal balance, together with accrued interest, shall be due and payable on or before April 26, 2010 ("Maturity Date"). Default Rate. After the occurrence of an Event of Default, as hereinafter defined or after maturity, this Note and all sums due hereunder shall bear interest at the highest rate allowed by law from the date of default or maturity until paid. Interest Basis. Interest shall be calculated on the basis of a three hundred sixty five (365) day year for actual days elapsed. Security. This Note is secured by, among other things, a Mortgage (the "Mortgage") upon real property (the "Property") in Orange County, Florida. This Note, the Mortgage and other loan documents as may be now or hereafter executed in connection therewith ("Loan Document(s)") shall together evidence the debt and constitute the security for the Note. Application of Payments. All payments made on the indebtedness evidenced by this Note shall be applied first to repayment of monies paid or advanced by Payee on behalf of the Maker in accordance with the terms of the Loan Documents, and thereafter shall be applied to payment of accrued interest, and lastly to payments of principal in the inverse order of their maturity. No partial prepayment of principal will have the effect of postponing, satisfying, reducing or otherwise affecting any scheduled installment before this Note is paid in full. Prepayment. In the event the principal payment is repaid earlier from one year from closing, a minimum of one year's interest shall by paid by Maker to Payee. Place and Manner of Payment. All payments of interest and principal are payable in lawful money of the United States of America in cash or immediately available funds, or by check with credit to be given upon receipt (subject to revocation of such credit should the check be returned for nonpayment for any reason), at the Payee's office at which the payment is made, or at such other place as the Payee may designate in writing. Events of Default. Maker shall be in default in this Note upon the occurrence of any of the following events, circumstances or conditions (each an "Event of Default"): (a) Maker's failure to make any payment of any sum due hereunder within ten (10) days of the due date thereof to Maker, (b) "The existence of a default or breach of any of the terms of this Note or any other Loan Document which is not cured within ten (10) days of any occurrence. Remedies after Default. At the option of Payee, all or any part of the principal and accrued interest on the Note, and all other obligations of the Maker to the Payee shall become immediately due and payable without additional notice a demand, upon the occurrence of an Event of Default or at any time thereafter. Payee may exercise all rights and remedies provided by law, equity, this Note or any other Loan Document or any other obligation of the Maker to the Payee. All rights and remedies as set forth in the Loan Documents are cumulative and concurrent and may be pursued singularly, successively or together, at the sole discretion of Payee, and may be exercised as often as occasion therefore shall arise. Such remedies are not exclusive, and Payee is entitled to all remedies provided at law or equity, whether or not expressly set forth therein. No act, or omission or commission or waiver of Payee, including specifically any failure to exercise any right, remedy or recourse, shall be effective unless set forth in a written document executed by Payee and then only to the extent specifically recited therein. A waiver or release with reference to one event shall not be construed as continuing, as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to any subsequent event, nor shall any single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, remedy or recourse. No notice to or demand on any party liable for the payment of this Note in any case shall entitle any such party to any other or further notice or demand in the same, similar or other circumstances unless specifically requested in writing pursuant to the terms of the Loan Documents. Taxes. All parties liable for the payment of this Note agree to pay all documentary stamp tax, nonrecurring intangible tax, and all interest and penalties, if any, on this Note and advances hereunder and on any instrument securing the foregoing. Collection Expenses. All parties liable for the payment of the Note agree to pay the Payee all costs incurred by the Payee, whether or not an action be brought, in collecting the sum s due under the Note, enforcing the performance and/or protecting its rights under the Loan Documents and in realizing on any of the security for the Note. Such costs and expenses shall include, but are not -2- limited to, filing fees, costs of publication, deposition fees, stenographer fees, witness fees and other court and related costs. Sums advanced by the Payee for the payment of collection costs and expenses shall accrue interest at the Penalty Rate, from the time they are advanced or paid by the Payee, and shall be due and payable upon payment by Payee without notice or demand and shall be secured by the lien of the Mortgage. Attorneys' Fees. All parties liable for the payment of the Note agree to pay the Payee reasonable attorneys' fees incurred by the Payee, whether or not an action be brought, in collecting the sums due under the Note, enforcing the performance and/or protecting its rights under the Loan Documents and in realizing on any of the security for the Note. Such reasonable attorneys' fees shall include, but not be limited to, fees for attorneys, paralegals, legal assistants, and expenses incurred in any and all judicial, bankruptcy, reorganization, administrative, receivership, or other proceedings effecting creditor's rights and involving a claim under the Note or any Loan Document, which such proceedings may arise before or after entry of a final judgment. Such fees shall be paid regardless whether suit is brought and shall include all fees incurred by Payee at all trial and appellate levels including bankruptcy court. Sums advanced by the Payee for the payment of attorneys' fees shall accrue bankruptcy interest at the Penalty Rate, from the time they are advanced by the Payee, and shall be due and payable upon payment by Payee without notice or demand and shall be secured by the lien of the Mortgage. Waiver and Consent. By the making, signing, or endorsement of this Note: (a) Maker waives demand, presentment, protest, notice of protest, notice of dishonor, suit against any party and all of the requirements necessary to hold any maker liable; (b) Maker and each co-signer consents to Payee's release of, agreement not sue, suspension of the right to enforce this instrument against and discharge or compromise of any obligation of any co-signer all without notice to or further reservations of rights against any of such parties, and all without in any way affecting or releasing the liability of any of such parties; (c) Maker and each co-signor waives and consents to the release, substitution, impairment, exchange and other dealing in any manner with all or any portion of any collateral securing this Note and any right of set-off that may now or hereafter secure this Note, all without notice to or further reservations of rights against any of such parties, and all without in any way affecting or releasing the liability of any of such parties, even though such release, substitution, impairment, exchange or other dealing may in any manner and to any extent impair any such collateral, lien or right of set-off; Choice of Law and Venue. This Note shall be governed by the Laws of the State of Florida, and the United States of America, whichever the context may require or permit. The Maker to this obligation expressly agrees that proper venue for any action which may be brought under this Note in addition to any other venue permitted by law shall be any county in which property encumbered -3- by the Mortgage is located. Should Payee institute any action under this Note, the Maker hereby submits to the jurisdiction of any court sitting in Florida, Severability. If any provision of this Note shall be held unenforceable or void, then such provision shall be deemed severable from the remaining provisions and shall in no way affect the enforceability of the remaining provisions nor the validity of this Note. Time of the Essence. Time is of the essence with respect to each provision in this Note where a time or date for performance is stated. All time periods or dates for performance stated in this Note are material provisions of this Note. Documentary Stamps. Florida Documentary stamp tax as required by Chapter 201 of the Florida Statutes in the amount required by Florida law have been paid and are affixed to the original Mortgage and Security Agreement, of even date herewith, which secures this Note. IN WITNESS WHEREOF, Maker has executed and delivered this instrument this day and year first above written. BLACK AMBER DEVELOPMENT, INC. an Ontario corporation By: /s/ RUSSEL ALLEN ------------------------------- Russel Allen, its President ASHTON WOODS ORLANDO LIMITED PARTNERSHIP, a Florida limited partnership By: Ashton Woods Lakeside, LLC, a Nevada limited liability company, its General Partner By: /s/ HARRY ROSENBAUM --------------------------- Harry Rosenbaum, its Manager EX-10.13 14 g97582a1exv10w13.txt EX-10.13 FORM OF PROMISSORY NOTE TO LARELNOR DEVELOPMENTS EXHIBIT 10.13 PROMISSORY NOTE $15,000,000.00 January _____, 2005 FOR VALUE RECEIVED, ASHTON WOODS USA L.L.C., a Nevada limited liability company (hereinafter collectively referred to as "Maker"), promises to pay to the order of LARELNOR DEVELOPMENTS INC., an Ontario corporation (hereinafter together with all subsequent holders hereof referred to as "Payee"), the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00) or so much thereof as may be outstanding hereunder, together with interest thereon at the rate provided below. The principal of and interest on this Note shall be due and payable in lawful money of the United States of America, at the offices of Payee in Toronto, Ontario, or at such other place as the holder hereof may from time to time designate by written notice to Maker. 1. INTEREST. This Note shall bear interest on the unpaid principal balance hereof from day to day remaining from the date hereof until maturity at a rate per annum equal to the lesser of (a) the maximum lawful rate or (b) three quarters of one percent (3/4%) above the Floating Base Rate. As used herein, the term "Floating Base Rate" means the base commercial rate of interest established from time to time by Wachovia Bank, National Association, for short-term unsecured loans to substantial and responsible commercial borrowers, each change in the rate charged hereunder to become effective, without notice to Maker, on the effective date of each change in the Floating Base Rate. 2. DEFAULT INTEREST. All past due principal and interest of this Note, whether due as a result of acceleration of maturity or otherwise, shall bear interest at the Maximum Rate from the date of maturity until paid, or if no such rate is designated under applicable law then at an annual rate equal to eighteen percent (18%). 3. PAYMENT OF NOTE. The unpaid principal sum of this Note together with all accrued and unpaid interest shall become due and payable on demand. 4. PREPAYMENT. Maker may prepay this Note, in whole or in part, at any time, or from time to time, without penalty, premium or notice. All amounts so prepaid shall be applied first to accrued and unpaid interest then due hereon, and thereafter to the outstanding principal balance of this Note in direct order of maturity. 5. DEFAULT; ENFORCEMENT. The entire unpaid principal balance of, and all accrued interest on, this Note shall immediately become due and payable, without further notice or demand, at the option of the holder hereof, upon the occurrence of any one or more of the following events of default ("Events of Default"): (a) Failure by Maker to make prompt payment of any installment of principal hereof or interest hereon as and when same becomes due and payable in accordance with the terms hereof and said failure shall continue for twenty (20) days after receipt of written notice of said failure from the holder hereof; (b) Failure by Maker to keep and perform any of the covenants or provisions of any deed of trust, mortgage, security agreement, assignment, loan agreement or other agreement securing this Note or evidencing the loan evidenced hereby, and said failure shall continue for twenty (20) days after receipt of written notice of said failure from the holder hereof; or (c) The bankruptcy or insolvency of, the assignment for the benefit of creditors by, or the appointment of a receiver for any property of any party liable for the payment of this Note, whether as maker, endorser, guarantor, surety or otherwise. In the event any one or more of the Events of Default specified above shall have occurred, the holder of this Note may, at its option, declare the entire unpaid principal balance of, and accrued and unpaid interest on, this Note to be immediately due and payable without notice or demand, foreclose all liens and security interests securing the payment of this Note, or any part thereof, and pursue any and all other remedies to which Payee may be entitled, at law or in equity. 6. CUMULATIVE RIGHTS. No failure or delay on the part of the holder of this Note in the exercise of any power or right under this Note or under any other instrument securing the payment of this Note or executed pursuant hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any other power or right preclude other or further exercise thereof or the exercise of any other power or right. Enforcement by the holder of this Note of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it and Maker shall remain liable for all amounts remaining unpaid with respect to the principal of and interest accrued on this Note, after any application of proceeds of any such enforcement of security. 7. WAIVER. Except as otherwise expressly provided herein, Maker (a) waives demand, presentment for payment, notice of intent to accelerate, notice of acceleration, notice of non-payment or dishonor, grace, protest, notice of protest, all other notices, and any and all diligence or delay in collection or the filing of suit hereon or enforcing any of the security herefor, (b) agrees to any substitution, subordination, exchange or release of any such security or the release of any party primarily or secondarily liable herefor, and (c) agrees that Payee shall not be required to first institute suit or exhaust its remedies against Maker or to enforce its rights against any security securing the indebtedness evidenced by this Note. 8. NOTICES. All notices or demands required or permitted hereunder shall be in writing, and shall be deemed to be delivered, (i) upon receipt, if hand delivered, or (ii) whether actually received or not, upon the deposit of both the original and the copy, as provided below, in a regularly maintained official depository for the mail, and sent by certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to Payee: 3751 Victoria Park Avenue Toronto, Ontario M1W 3Z4 Canada If to Maker: 3751 Victoria Park Avenue Toronto, Ontario M1W 3Z4 Canada Either Maker or Payee may change its respective address or addressee by giving notice of such change to the other party in the manner provided herein. For the purpose of changing such addresses or addressees only, unless and until such written notice is actually received, the last address and addressee specified for each party shall be deemed to continue in effect for all purposes. 2 9. GOVERNING LAW AND VENUE. This Note shall be construed according to and governed by the laws of the Province of Ontario, Canada. The obligations of Maker under this Note are performable in the Province of Ontario, Canada. 10. HEADINGS. The paragraph headings of the sections of this Note are inserted for convenience of reference only, and shall not affect the meaning or interpretation of this Note. 11. LIMITATION OF INTEREST. All agreements between Maker and Payee, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever, whether by reason of advancement of the proceeds hereof, acceleration of the maturity of the unpaid principal balance hereof or otherwise, shall the amount contracted for, charged, received, paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the money to be loaned hereunder or otherwise or for the payment or performance of any covenant or obligation contained herein or in any other document evidencing, securing or pertaining to the indebtedness evidenced by this Note exceed the maximum amount permissible under applicable law. In this connection, it is expressly stipulated and agreed that it is the intent of Payee and Maker in the execution and delivery of this Note to contract in strict compliance with applicable usury laws. If, from any circumstance whatsoever, fulfillment of any provision hereof or any other agreement shall, at the time fulfillment of such provision be due, involve transcending the limit of validity prescribed by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity; and if from any circumstance the holder hereof shall ever receive as interest an amount which would exceed the maximum lawful rate, any amount equal to any excessive interest shall (a) be applied to the reduction of the unpaid principal balance due hereunder and not to the payment of interest or (b) if such excess interest exceeds the unpaid principal balance of this Note, such excess shall be refunded to Maker. All sums contracted for, charged or received hereunder for the use, forbearance or detention of the indebtedness evidenced hereby shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of this Note until payment in full so that the rate of interest on account of such indebtedness is uniform throughout the term hereof. The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between Maker and the holder hereof. 12. SUCCESSORS AND ASSIGNS. All of the covenants, stipulations, promises and agreements contained in this Note by or on behalf of Maker shall bind Maker's heirs, personal representatives, successors and assigns, whether so expressed or not. 13. COLLECTION COSTS. If this Note is collected by legal proceeding or through a probate or bankruptcy court, or is placed in the hands of an attorney for collection after default (whether or not suit is filed), Maker agrees to pay all costs of collection and/or suit, including but not limited to reasonable attorneys' fees incurred by Payee. 14. UNENFORCEABILITY. The invalidity, or unenforceability in particular circumstances, of any provision of this Note shall not extend beyond such provision or such circumstances, and no other provision of this Note shall be affected thereby. 15. SEVERAL OBLIGATIONS. Notwithstanding that this Note may be executed by more than one entity, the obligations contained herein shall be several (and not the joint) obligations of each entity executing this Note, and the liability of each party hereunder shall be limited to the amount of the advances made hereunder by Payee to such party, together with interest thereon and any other costs and/or expenses provided herein. 16. PAYMENT DATES. If any payment of principal and/or interest on this Note shall become due on a Saturday, Sunday or any other legal holiday, such payment shall be paid on the next succeeding business day, and such extension of time shall in such event be included in computing the amount of interest payable in connection with such payment. 3 17. SUBORDINATE NOTE. This Note is expressly subordinate, subject and inferior to the indebtedness evidenced by the Promissory Notes executed by Maker in connection with the Credit Agreement dated January 19, 2005, executed by Borrower, Wachovia Bank, National Association, Bank of America, N.A., KeyBank, National Association, First American Bank, Guaranty Bank, Comerica Bank, National City Bank, U.S. Bank National Association, and Wachovia Bank, National Association, as Agent for Banks. 18. REVOLVING LINE OF CREDIT. This Note evidences a portion of an existing revolving line of credit extended by Payee to Maker and Maker acknowledges that all or a portion of the line of credit has previously been advanced by Payee to Maker. Maker may request advances and make payments hereunder from time to time. The unpaid balance of this Note shall increase and decrease with each new advance or payment hereunder, as the case may be, but in no event shall the unpaid balance hereof exceed $15,000,000.00 19. FUTURE ADVANCES. A portion of the principal amount of this Note may represent money which will be advanced to Maker in a series of advancements to be made from time to time. At the time any such advance is made, it shall not be necessary for Maker to execute any further notes to evidence the obligation of Maker to pay the amount of each advance, together with interest thereon as provided by the terms of this Note. IN WITNESS WHEREOF, the Maker has duly executed this Note as of the day and year first above written. ASHTON WOODS USA L.L.C., a Nevada limited liability company By: ________________________________ Harry Rosenbaum, Manager 4 EX-12.1 15 g97582a1exv12w1.txt EX-12.1 STATEMENT RE: COMPUTATION OF RATIOS EXHIBIT 12.1 ASHTON WOODS USA L.L.C. STATEMENT REGARDING COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS, EXCEPT RATIOS)

SIX MONTHS YEAR ENDED MAY 31, ENDED ----------------------------------------------- ----------- 2005 2004 2003 2002 2001 11/30/2005 ------- ------- ------- ------- ------- ----------- EARNINGS: Income before income taxes 59,454 42,427 16,497 14,193 13,605 30,862 Less: Earnings from unconsolidated entities (1,571) (1,259) (1,523) (543) (353) (1,188) Minority interest 398 112 12 -- (175) -- Fixed charges (from below) 5,185 5,200 6,053 8,186 10,428 5,659 Distributed income of unconsolidated entities 1,571 1,259 1,523 543 353 1,188 Less: interest capitalized (4,840) (4,932) (5,796) (7,960) (10,243) (5,396) Interest amortized to cost of sales 4,790 5,822 7,460 8,721 12,355 2,446 ------- ------- ------- ------- ------- --------- Earnings available for fixed charges 64,987 48,629 24,226 23,140 25,970 33,571 ------- ------- ------- ------- ------- --------- FIXED CHARGES: Interest incurred, including capitalized 4,840 4,932 5,796 7,960 10,243 5,396 amounts and amortization of debt costs Estimated interest component of rent expense 345 268 257 226 185 263 ------- ------- ------- ------- ------- --------- Total fixed charges 5,185 5,200 6,053 8,186 10,428 5,659 ------- ------- ------- ------- ------- --------- RATIO OF EARNINGS TO FIXED CHARGES 12.53 9.35 4.00 2.83 2.49 5.93 ------- ------- ------- ------- ------- ---------

EX-23.7 16 g97582a1exv23w7.txt EX-23.7 CONSENT OF KPMG LLP (KPMG LOGO) KPMG LLP Suite 2000 303 Peachtree Street, NE Atlanta, GA 30308 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Members Ashton Woods USA L.L.C.: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP Atlanta, Georgia January 27, 2006 KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative. EX-25.1 17 g97582a1exv25w1.txt EX-25.1 STATEMENT OF ELIGIBILITY EXHIBIT 25.1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) ------------------------- U.S. BANK NATIONAL ASSOCIATION (Exact name of Trustee as specified in its charter) 31-0841368 I.R.S. Employer Identification No. 800 Nicollet Mall Minneapolis, Minnesota 55402 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Raymond S. Haverstock U.S. Bank National Association 60 Livingston Avenue St. Paul, MN 55107 (651) 495-3909 (Name, address and telephone number of agent for service) Ashton Woods USA L.L.C. And Ashton Woods Finance Co. (Issuer with respect to the Securities) Nevada 78-2721881 Delaware 20-3548058 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1080 Holcomb Bridge Road Building 200, Suite 350 30076 Roswell, GA - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) 9.5% SENIOR SUBORDINATED NOTES DUE 2015 (TITLE OF THE INDENTURE SECURITIES) ================================================================================ FORM T-1 ITEM 1. GENERAL INFORMATION. Furnish the following information as to the Trustee. a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Washington, D.C. b) Whether it is authorized to exercise corporate trust powers. Yes ITEM 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. None ITEMS 3-15 Items 3-15 are not applicable because to the best of the Trustee's knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee. ITEM 16. LIST OF EXHIBITS: List below all exhibits filed as a part of this statement of eligibility and qualification. 1. A copy of the Articles of Association of the Trustee.* 2. A copy of the certificate of authority of the Trustee to commence business.* 3. A copy of the certificate of authority of the Trustee to exercise corporate trust powers.* 4. A copy of the existing bylaws of the Trustee.* 5. A copy of each Indenture referred to in Item 4. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6. 7. Report of Condition of the Trustee as of September 30, 2005 published pursuant to law or the requirements of its supervising or examining authority, attached as Exhibit 7. * Incorporated by reference to Exhibit 25.1 to Amendment No. 2 to registration statement on S-4 filed by Revlon Consumer Products Corp., Registration Number 333-128217, dated 11-22-2005. 2 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of St. Paul, State of Minnesota on the 4th of January, 2006. By: /s/ Raymond S. Haverstock --------------------------- Raymond S. Haverstock Vice President By: /s/ Richard Prokosch --------------------- Richard Prokosch Vice President 3 EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: January 4 2006 By: /s/ Raymond S. Haverstock --------------------------- Raymond S. Haverstock Vice President By: /s/ Richard Prokosch --------------------- Richard Prokosch Vice President 4 EXHIBIT 7 U.S. BANK NATIONAL ASSOCIATION STATEMENT OF FINANCIAL CONDITION AS OF 9/30/2005 ($000'S)

9/30/2005 ------------ ASSETS Cash and Due From Depository Institutions $ 6,913,461 Securities 41,305,628 Federal Funds 3,300,808 Loans & Lease Financing Receivables 132,797,940 Fixed Assets 1,767,618 Intangible Assets 10,366,321 Other Assets 10,215,546 ------------ TOTAL ASSETS $206,667,322 LIABILITIES Deposits $130,337,423 Fed Funds 17,257,962 Treasury Demand Notes 0 Trading Liabilities 176,079 Other Borrowed Money 25,506,397 Acceptances 85,177 Subordinated Notes and Debentures 6,661,982 Other Liabilities 5,968,944 ------------ TOTAL LIABILITIES $185,993,964 EQUITY Minority Interest in Subsidiaries $ 1,029,440 Common and Preferred Stock 18,200 Surplus 11,804,040 Undivided Profits 7,821,678 ------------ TOTAL EQUITY CAPITAL $ 20,673,358 TOTAL LIABILITIES AND EQUITY CAPITAL $206,667,322

- -------------------------------------------------------------------------------- To the best of the undersigned's determination, as of the date hereof, the above financial information is true and correct. U.S. BANK NATIONAL ASSOCIATION By: /s/ Raymond S. Haverstock --------------------------------------- Vice President Date: January 4, 2006 5 EX-99.1 18 g97582a1exv99w1.htm EX-99.1 FORM OF LETTER OF TRANSMITTAL

Exhibit 99.1

LETTER OF TRANSMITTAL

Offer to Exchange

any and all outstanding

9.5% Senior Subordinated Notes due 2015,

which are not registered under the Securities Act of 1933,

for any and all outstanding

9.5% Senior Subordinated Notes due 2015,

which have been registered under the Securities Act of 1933,

of

ASHTON WOODS USA L.L.C.

and

ASHTON WOODS FINANCE CO.

PURSUANT TO THE PROSPECTUS DATED                     , 2006.

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON                , 2006,

UNLESS EXTENDED (THE “EXPIRATION DATE”). ORIGINAL NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M.,

NEW YORK CITY TIME, ON THE EXPIRATION DATE.

The Exchange Agent for the Exchange Offer is:

U.S. Bank, National Association

By Mail, Overnight Courier or Hand Delivery:

U.S. Bank, National Association

60 Livingston Avenue

EP-MN-WS2N

St. Paul, MN 55107

Attention: Specialized Finance Department

Reference: Ashton Woods USA L.L.C. Exchange

By Facsimile:

(651) 495-8158

Attention: Specialized Finance Department

Confirm by Telephone:

(800) 934-6802

Reference: Ashton Woods USA L.L.C. Exchange

To confirm by telephone or for information:

(800) 934-6802

Reference: Ashton Woods USA L.L.C. Exchange

      DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE OR OTHERWISE THAN AS PROVIDED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.

      This Letter of Transmittal is to be completed by holders of Original Notes (as defined below) either if Original Notes are to be forwarded herewith or if tenders of Original Notes are to be made by book-entry transfer to an account maintained by U.S. Bank, National Association (the “Exchange Agent”) at The Depository Trust Company (“DTC”) pursuant to the procedures set forth in “The exchange offer — Exchange Offer Procedures” in the Prospectus.

      Holders of Original Notes (i) whose certificates (the “Certificates”) for such Original Notes are not immediately available or (ii) who cannot deliver their Original Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date or (iii) who cannot complete the procedures for delivery by book-entry transfer prior to 5:00 p.m., New York City time, on the Expiration Date, must tender their Original Notes according to the guaranteed delivery procedures set forth in “The exchange offer — Guaranteed Delivery Procedures” in the Prospectus.

      SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

2

NOTE: SIGNATURES MUST BE PROVIDED BELOW

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

ALL TENDERING HOLDERS COMPLETE THIS BOX:

DESCRIPTION OF ORIGINAL NOTES TENDERED
If blank, please print Name and	Original Notes Tendered
Address of Registered Holder	(Attach Additional List of Notes)
			Principal Amount of
		Principal	Original Notes
	Certificate	Amount of	Tendered
	Number(s)*	Original Notes	(If Less Than All)**
	Total Amount Tendered:
* Need not be completed by book-entry holders.
** Original Notes may be tendered in whole or in part in denominations of $1,000 and integral multiples thereof. Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Original Notes held by such holder indicated in the corresponding column to the left of this column

BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY:

o CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING:

       Name of Tendering Institution: 

       DTC Account No.  Transaction Code No. 

o CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:

       Name(s) of Registered Holder(s): 

       Window Ticket Number (if any): 

       Date of Execution of Notice of Guaranteed Delivery: 

       Name of Institution which Guaranteed Delivery: 

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IF GUARANTEED DELIVERY IS TO BE MADE BY BOOK-ENTRY TRANSFER:

Name of Tendering Institution:

____________________________________________________________________________

DTC Account No. Transaction Code No.

o CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.

o CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A “PARTICIPATING BROKER-DEALER”) AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.

Name:

Address:

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Ladies and Gentlemen:

      The undersigned hereby tenders to Ashton Woods USA L.L.C., a Nevada limited liability company, and Ashton Woods Finance Co., a Delaware corporation (collectively, the “Issuers”), the above described aggregate principal amount of the Issuers’ 9.5% Senior Subordinated Notes due 2015, which are not registered under the Securities Act of 1933 (the “Original Notes”), in exchange for a like aggregate principal amount of the Issuers’ 9.5% Senior Subordinated Notes due 2015, which have been registered under the Securities Act of 1933 (the “New Notes”), upon the terms and subject to the conditions set forth in the Prospectus, dated                    , 2006 (as the same may be amended or supplemented from time to time, the “Prospectus”), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the “Exchange Offer”).

      Subject to and effective upon the acceptance for exchange of all or any portion of the Original Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby tenders, exchanges, sells, assigns and transfers to or upon the order of the Issuers all right, title and interest in and to such Original Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Issuers in connection with the Exchange Offer) with respect to the tendered Original Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates for Original Notes to the Issuers together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Issuers, upon receipt by the Exchange Agent, as the undersigned’s agent, of the New Notes to be issued in exchange for such Original Notes, (ii) present Certificates for such Original Notes for transfer, and to transfer the Original Notes on the books of the Issuers and (iii) receive for the account of the Issuers all benefits and otherwise exercise all rights of beneficial ownership of such Original Notes, all in accordance with the terms and conditions of the Exchange Offer.

      THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE ORIGINAL NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE ISSUERS WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE ORIGINAL NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE ISSUERS OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE ORIGINAL NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT, DATED AS OF SEPTEMBER 21, 2005 (THE “REGISTRATION RIGHTS AGREEMENT”), AMONG THE ISSUERS, THE GUARANTORS NAMED THEREIN AND THE INITIAL PURCHASERS NAMED THEREIN, FOR THE BENEFIT OF THE INITIAL PURCHASERS AND THE HOLDERS OF THE ORIGINAL NOTES. THE UNDERSIGNED AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.

      The name(s) and address(es) of the registered holder(s) of the Original Notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the Certificates representing such Original Notes or, in the case of book-entry securities, on the relevant securities position listing. The Certificate number(s) and the Original Notes that the undersigned wishes to tender should be indicated in the appropriate boxes above.

      If any tendered Original Notes are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Original Notes than are tendered or accepted for exchange, Certificates for such nonexchanged or nontendered Original Notes will be returned (or, in the case of Original Notes tendered by book-entry transfer, such Original Notes will be credited to an account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer.

      The undersigned understands that tenders of Original Notes pursuant to any one of the procedures described in “The exchange offer — Exchange Offer Procedures” in the Prospectus and in the instructions hereto will, upon the Issuers’ acceptance for exchange of such tendered Original Notes, constitute a binding agreement between the

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undersigned and the Issuers upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Issuers may not be required to accept for exchange any of the Original Notes tendered hereby.

      Unless otherwise indicated herein in the box entitled “Special Issuance Instructions” below, the undersigned hereby directs that the New Notes be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Original Notes, that such New Notes be credited to the account indicated above maintained at DTC. If applicable, substitute Certificates representing Original Notes not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Original Notes, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under “Special Delivery Instructions,” please deliver New Notes to the undersigned at the address shown below the undersigned’s signature.

      By tendering Original Notes and executing this Letter of Transmittal, the undersigned hereby represents and agrees that (i) any New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of its business, (ii) the undersigned has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act of 1933) of New Notes to be received in the Exchange Offer in violation of the provisions of the Securities Act of 1933, (iii) the undersigned is not an “affiliate” (as defined in Rule 405 under the Securities Act of 1933) of the Issuers or any of their subsidiaries, or, if the undersigned is an affiliate, the undersigned will comply with the registration and prospectus delivery requirements of the Securities Act of 1933 to the extent applicable, (iv) if the undersigned is not a broker-dealer, the undersigned is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act of 1933) of such New Notes and (v) if the undersigned is a broker-dealer that received New Notes for its own account in the Exchange Offer, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, such broker-dealer will deliver a Prospectus in connection with any resale of such New Notes (provided that, by so acknowledging and by delivering a prospectus, such broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act of 1933). See “The exchange offer  — Terms of the Exchange Offer — Purpose of the exchange offer,” “The exchange offer — Exchange Offer Procedures” and “Plan of distribution” in the Prospectus.

      The Issuers have agreed that, subject to the provisions of the Registration Rights Agreement, the Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Original Notes, where such Original Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making activities or other trading activities, for a period ending 180 days of the Prospectus (subject to extension under certain limited circumstances described in the Prospectus) or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. However, a Participating Broker-Dealer who intends to use the Prospectus in connection with the resale of New Notes received in exchange for Original Notes pursuant to the Exchange Offer must notify the Issuers, or cause the Issuers to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided herein for that purpose or may be delivered to the Exchange Agent at one of the addresses set forth in the Prospectus under “The exchange offer — Exchange Agent.” In that regard, each Participating Broker-Dealer, by tendering such Original Notes and executing this Letter of Transmittal, agrees that, upon receipt of notice from the Issuers of the occurrence of (i) the request of the Securities and Exchange Commission for amendments or supplements to the Registration Statement or the Prospectus included therein, (ii) the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (iii) the receipt by the Issuers or their legal counsel of any notification with respect to the suspension of the qualification of the New Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose or (iv) the happening of any event that requires the Issuers to make changes in the Registration Statement or the Prospectus in order that the Registration Statement or the Prospectus does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made), not misleading, such Participating Broker-Dealer shall suspend the use of such Prospectus, until the Issuers have promptly prepared and filed a post-effective amendment to the Registration Statement or a supplement to the related Prospectus and any other document required so that, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be

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stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and has furnished an amended or supplemented Prospectus to the Participating Broker-Dealer or the Issuers have given notice that the sale of the New Notes may be resumed, as the case may be.

      If the Issuers give such notice to suspend the sale of the New Notes, it shall extend the 180-day period referred to above during which Participating Broker-Dealers are entitled to use the Prospectus in connection with the resale of New Notes by the number of days in the period from and including the date of the giving of such notice to and including the date when the Issuers shall have made available to Participating Broker-Dealers copies of the supplemented or amended Prospectus necessary to resume resales of the New Notes or to and including the date on which the Issuers have given notice that the use of the applicable Prospectus may be resumed, as the case may be.

      Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from September 21, 2005. Such interest will be paid with the first interest payment on the New Notes on April 1, 2006.

      All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable.

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HOLDER(S) SIGN HERE

(SEE INSTRUCTIONS 1, 2, 5 AND 6)

(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)

(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)

      Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) for the Original Notes hereby tendered or on a security position listing, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith (including such opinions of counsel, certifications and other information as may be required by the Issuers or the Trustee for the Original Notes to comply with the restrictions on transfer applicable to the Original Notes). If the signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary capacity or representative capacity, please set forth the signer’s full title. See Instruction 5.

(SIGNATURE(S) OF HOLDER(S))

Signature(s):  Dated:  , 2005

Name(s): 

(Please Print)

Address: 

(Include Zip Code)

Area Code and Telephone Number: 

TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)

GUARANTEE OF SIGNATURE(S)

(SEE INSTRUCTIONS 2 AND 5)

Authorized Signature: 

Name: 

(Please Print)

Date: ________________________________________________________________________________, 2005

Capacity or Title: 

Name of Firm: 

Address: 

(Include Zip Code)

Area Code and Telephone Number: 

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SPECIAL ISSUANCE INSTRUCTIONS

(See Instructions 1, 5 and 6)

To be completed ONLY if the New Notes are to be issued in the name of someone other than the registered holder of the Original Notes whose name(s) appear(s) above:

Issue New Notes to:

Name: 

(Please Print)

Address: 

(Include Zip Code)

(Taxpayer Identification or Social Security No.)

SPECIAL DELIVERY INSTRUCTIONS

(See Instructions 1, 5 and 6)

To be completed ONLY if the New Notes are to be delivered to someone other than the registered holder of the Original Notes whose name(s) appear(s) above, or to such registered holder(s) at an address other than that shown above.

Mail New Notes to:

Name: 

(Please Print)

Address: 

(Include Zip Code)

(Taxpayer Identification or Social Security No.)

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INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER

      1. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery Procedures. This Letter of Transmittal is to be completed either if (a) Certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in “The exchange offer — Exchange Offer Procedures” in the Prospectus. Certificates, or timely confirmation of a book-entry transfer of such Original Notes into the Exchange Agent’s account at DTC, as well as a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent’s Message in the case of a book-entry delivery, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Original Notes may be tendered in whole or in part in the principal amount of $1,000 and integral multiples thereof.

      Holders who wish to tender their Original Notes and (i) whose Certificate of such Original Notes are not immediately available or (ii) who cannot deliver their Original Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date or (iii) who cannot complete the procedures for delivery by book-entry transfer prior to 5:00 p.m., New York City time, on the Expiration Date, must tender their Original Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in “The exchange offer — Guaranteed Delivery Procedures” in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Guarantor Institution (as defined below); (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Issuers, must be received by the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date; and (iii) the Certificates (or a book-entry confirmation (as defined in the Prospectus)) representing all tendered Original Notes, in proper form for transfer, together with a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent’s Message in the case of a book-entry delivery, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three business days after the Expiration Date, all as provided in “The exchange offer  — Guaranteed Delivery Procedures” in the Prospectus.

      The Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail or transmitted by facsimile to the Exchange Agent, and must include a guarantee by an Eligible Guarantor Institution in the form set forth in such Notice. For Original Notes to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration Date. As used herein and in the Prospectus, “Eligible Guarantor Institution” means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as “an eligible guarantor institution,” including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association.

      THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT OR HAND DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.

      The Issuers will not accept any alternative, conditional or contingent tenders. Each tendering holder, by executing a Letter of Transmittal (or manually signed facsimile thereof), waives any right to receive any notice of the acceptance of such tender.

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      2. Guarantee of Signatures. No signature guarantee on this Letter of Transmittal is required if:

      (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on the relevant security position listing as the owner of the Original Notes) of Original Notes tendered herewith, unless such holder(s) has completed either the box entitled “Special Issuance Instructions” or the box entitled “Special Delivery Instructions” above, or

      (ii) such Original Notes are tendered for the account of a firm that is an Eligible Guarantor Institution.

      In all other cases, an Eligible Guarantor Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5.

      3. Inadequate Space. If the space provided in the box captioned “Description of Original Notes” is inadequate, the Certificate number(s) and/or the aggregate principal amount of Original Notes and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal.

      4. Partial Tenders and Withdrawal Rights. Tenders of Original Notes will be accepted only in the principal amount of $1,000 and integral multiples thereof. If less than all the Original Notes evidenced by any Certificate submitted are to be tendered, fill in the principal amount of Original Notes which are to be tendered in the box entitled “Principal Amount of Original Notes Tendered (if less than all).” In such case, new Certificate(s) for the remainder of the Original Notes that were evidenced by your old Certificate(s) will only be sent to the holder of the Original Notes, or such other party as you identify in the box captioned “Special Delivery Instructions” promptly after the Expiration Date. All Original Notes represented by Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated.

      Except as otherwise provided herein, tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. In order for a withdrawal to be effective on or prior to that time, a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth above or in the Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Original Notes to be withdrawn, the aggregate principal amount of Original Notes to be withdrawn, and (if Certificates for Original Notes have been tendered) the name of the registered holder of the Original Notes as set forth on the Certificate for the Original Notes, if different from that of the person who tendered such Original Notes. If Certificates for the Original Notes have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Certificates for the Original Notes, the tendering holder must submit the serial numbers shown on the particular Certificates for the Original Notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Guarantor Institution, except in the case of Original Notes tendered for the account of an Eligible Guarantor Institution. If Original Notes have been tendered pursuant to the procedures for delivery by book-entry transfer set forth in “The exchange offer — Exchange Offer Procedures,” in the Prospectus, the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Original Notes, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Original Notes may not be rescinded. Original Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time prior to 5:00 p.m., New York City time, on the Expiration Date by following any of the procedures described in the Prospectus under “The exchange offer — Exchange Offer Procedures.”

      All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Issuers, in their sole discretion, whose determination shall be final and binding on all parties. Neither the Issuers, any affiliates or assigns of the Issuers, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Original Notes which have been tendered but which are withdrawn will be returned to the holder thereof without cost to such holder promptly after withdrawal.

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      5. Signatures on Letter of Transmittal, Assignments and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Original Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) or, in the case of book-entry securities, on the relevant security position listing) without alteration, enlargement or any change whatsoever.

      If any of the Original Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal.

      If any tendered Original Notes are registered in different name(s) on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or manually signed facsimiles thereof) as there are different registrations of Certificates.

      If this Letter of Transmittal or any Certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Issuers, in their sole discretion, of such persons’ authority to so act.

      When this Letter of Transmittal is signed by the registered owner(s) of the Original Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or separate bond power(s) are required unless New Notes are to be issued in the name of a person other than the registered holder(s). Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an Eligible Guarantor Institution.

      If this Letter of Transmittal is signed by a person other than the registered owner(s) of the Original Notes listed, the Certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the registered owner(s) appear(s) on the Certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Issuers or the Trustee for the Original Notes may require in accordance with the restrictions on transfer applicable to the Original Notes. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Guarantor Institution.

      6. Special Issuance and Delivery Instructions. If New Notes are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if New Notes are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Original Notes not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4.

      7. Irregularities. The Issuers determine, in their sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Original Notes, which determination shall be final and binding on all parties. The Issuers reserve the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Issuers, be unlawful. The Issuers also reserve the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under “The exchange offer  — Conditions” or any conditions or irregularity in any tender of Original Notes of any particular holder, and if the Issuers waive any conditions or irregularity with respect to a particular holder, the Issuers will waive such condition with respect to all other holders. The Issuers’ interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of Original Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Issuers, any affiliates or assigns of the Issuers, the Exchange Agent, nor any other person shall be under any duty to give notification of any irregularities in tenders or incur any liability for failure to give such notification.

      8. Questions, Requests for Assistance and Additional Copies. Questions and requests for assistance may be directed to the Exchange Agent at one of its addresses and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee.

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      9. 28% Backup Withholding; Substitute Form W-9. Under U.S. Federal income tax law, a U.S. holder whose tendered Original Notes are accepted for exchange is required to provide the Exchange Agent with such U.S. holder’s correct taxpayer identification number (“TIN”) on Substitute Form W-9 below. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service (the “IRS”) may subject the U.S. holder or other payee to a $50 penalty. In addition, payments to such U.S. holders or other payees with respect to Original Notes exchanged pursuant to the Exchange Offer may be subject to a 28% (in 2005) backup withholding.

      The box in Part 2 of the Substitute Form W-9 may be checked if the tendering U.S. holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 2 is checked, the U.S. holder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 2 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 28% of all payments made prior to the time a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W-9. If the U.S. holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the U.S. holder and no further amounts shall be retained or withheld from payments made to the U.S. holder thereafter. If, however, the U.S. holder has not provided the Exchange Agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 28% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided.

      The U.S. holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered owner of the Original Notes or of the last transferee appearing on the transfers attached to, or endorsed on, the Original Notes. If the Original Notes are registered in more than one name or are not in the name of the actual owner, consult the enclosed “Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9” for additional guidance on which number to report.

      Certain U.S. holders (including, (1) an organization exempt from tax under Section 501(a), any IRA, or a custodial account under Section 403(b)(7) if the account satisfies the requirements of Section 401(f)(2); (2) the United States or any of its agencies or instrumentalities; (3) a state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities; (4) a foreign government or any of its political subdivisions, agencies or instrumentalities; (5) an international organization or any of its agencies or instrumentalities; (6) a corporation; (7) a foreign central bank of issue; (8) a dealer in securities or commodities required to register in the U.S., the District of Columbia or a possession of the U.S.; (9) a futures commission merchant registered with the Commodity Futures Trading Commission; (10) a REIT; (11) an entity registered at all times during the tax year under the Investment Company Act of 1940; (12) a common trust fund operated by a bank under Section 584(a); (13) a financial institution; (14) a middleman known in the investment community as a nominee or custodian; or (15) a trust exempt from tax under Section 664 or described in Section 4947) may not be subject to these backup withholding and reporting requirements. Such U.S. holders should nevertheless complete the attached Substitute Form W-9 below, and check the box “Exempt from backup withholding” provided on Substitute Form W-9, to avoid possible erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting a properly completed IRS Form W-8 BEN, signed under penalties of perjury, attesting to that U.S. holder’s exempt status.

      Backup withholding is not an additional U.S. Federal income tax. Rather, the U.S. Federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained.

      10. Lost, Destroyed or Stolen Certificates. If any Certificate(s) representing Original Notes has been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Certificate(s) have been followed.

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      11. Security Transfer Taxes. Holders who tender their Original Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Original Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Original Notes in connection with the Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.

      IMPORTANT: THIS LETTER OF TRANSMITTAL (OR MANUALLY SIGNED FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.

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TO BE COMPLETED BY ALL TENDERING NOTEHOLDERS

(SEE INSTRUCTION 9)

PAYERS NAME: U.S. BANK, NATIONAL ASSOCIATION

  Name:

  Business name, if different from above:

  Check appropriate box: o Individual/sole proprietoro  Corporation
o  Partnershipo  Other

                           o Exempt from backup withholding

  Address (number, street and apt. or suite no.):

  City, state and ZIP code:

  List account number(s) here (optional):

SUBSTITUTE Form W-9	Part 1 — PLEASE PROVIDE YOUR TIN AT THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW	Social Security Number or Employer Identification Number
Department of the Treasury,	Part 2 — Awaiting TIN o

Internal Revenue Service	CERTIFICATION — UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Payor’s Request for Taxpayer	(1) the number on this form is my correct Taxpayer Identification Number (or that I am waiting for a number to be issued to me).
Identification
Number (TIN) and Certification	(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, (b) I have not been notified by the Internal Revenue Service (the “IRS”) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to withholding.
	(3) I am a U.S. person (including a U.S. resident alien).
	CERTIFICATION INSTRUCTIONS — YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDER-REPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING, YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT ITEM (2).

Signature  Date 

NOTE:  FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 28% (in 2005) OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

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YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

          I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (1) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administrative Office or (2) I intend to mail or deliver an application in the near future. If I do not provide a Taxpayer Identification Number by the time of payment, 28% of all payments made to me on account of the New Notes shall be retained until I provide a Taxpayer Identification Number to the Exchange Agent and that, if I do not provide my Taxpayer Identification Number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 28% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number:

Signature Date

16 CORRESP 19 filename19.txt Atlanta Beijing Brussels Hong Kong London Los Angeles Milan New York Orange County Palo Alto Paris San Diego San Francisco Shanghai Stamford Tokyo Washington, DC (404) 815-2287 elizabethnoe@paulhastings.com January 31, 2006 58338.00002 Pamela A. Long and Andrew Schoeffler Division of Corporate Finance Securities and Exchange Commission 100 F Street, NE Mail Stop 7010 Washington, DC 20549-7010 Re: Ashton Woods USA L.L.C. Registration Statement on Form S-4 Filed November 23, 2005 File No.: 333-129906 and 333-129906-01 through 21 Dear Ms. Long and Mr. Schoeffler: On behalf of our clients, Ashton Woods USA L.L.C., a Nevada limited liability company (the "Issuer"), Ashton Woods Finance Co., a Delaware corporation (the "Co-Issuer" and together with the Issuer, the "Issuers") and the subsidiary guarantors referred to in the Form S-4 referenced above (each, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors"), we are submitting the Issuers' response to Staff comments conveyed in the Staff comment letter dated December 20, 2005. This letter is submitted along with Amendment No. 1 to the Registration Statement on Form S-4 of the Issuers (the "S-4") for the registration under the Securities Act of 1933, as amended (the "Securities Act") of $125,000,000 aggregate principal amount of the Issuers' 9.5% senior subordinated notes due 2015 (the "New Notes") and guarantees thereof by the Subsidiary Guarantors (the "New Guarantees") issuable in exchange for the Issuers' existing 9.5% senior subordinated notes due 2015 and the related guarantees thereof by the Subsidiary Guarantors, which were offered and sold in a transaction exempt from registration under the Securities Act. Amendment No. 1 to the S-4 was transmitted for filing to the Commission via Edgar on the date hereof. Please note that we have been advised by the Issuers and the Subsidiary Guarantors that (i) the Issuers are registering the New Notes, and the Subsidiary Guarantors are registering the New Guarantees in reliance on the Staff positions enunciated in Exxon Capital Holdings Corp. (avail. April 13, 1989), Morgan Stanley & Co. (avail. June 5, 1991) and Shearman & Sterling (avail. July 2, 1993), (ii) none of the Issuers, any Subsidiary Guarantor nor any affiliate of the Issuers or any Subsidiary Guarantor has entered into any agreement or understanding with any person to distribute the New Notes and the New Guarantees thereof and (iii) to the best of each Issuer's and each Subsidiary Guarantor's information and belief, each person participating in the Exchange Offer is January 31, 2006 Page 2 acquiring the New Notes and the New Guarantees thereof in its ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the New Notes and the New Guarantees thereof to be received in the Exchange Offer. In this regard, we have been advised by the Issuers and the Subsidiary Guarantors that they will make each person participating in the Exchange Offer aware (through the Prospectus included in the S-4 (the "Prospectus")) that if such person is participating in the Exchange Offer for the purpose of distributing the New Notes and the New Guarantees thereof to be acquired in the Exchange Offer, such person (i) could not rely on the Staff position enunciated in Exxon Capital Holdings Corporation or interpretive letters to similar effect and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. The Issuers and the Subsidiary Guarantors acknowledge that such a secondary resale transaction should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K. We have also been advised by the Issuers and the Subsidiary Guarantors that they (i) will make each person participating in the Exchange Offer aware (through the Prospectus) that any broker-dealer who holds Original Notes and Original Guarantees acquired for its own account as a result of market-making activities or other trading activities, and who receives New Notes and New Guarantees in exchange for such Original Notes and Original Guarantees pursuant to the Exchange Offer, may be a statutory underwriter and must deliver a prospectus meeting the requirements of the Securities Act, which may be the Prospectus so long as it contains a plan of distribution with respect to such resale transactions (such plan of distribution need not name the broker-dealer or disclose the amount of New Notes held by the broker-dealer), in connection with any resale of such New Notes and New Guarantees and (ii) will include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer the following additional provision if the exchange offeree is a broker-dealer holding Original Notes acquired for its own account as a result of market-making activities or other trading activities, an acknowledgement that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of New Notes and New Guarantees received in respect of such Original Notes and Original Guarantees pursuant to the Exchange Offer. The transmittal letter or similar documentation may also include a statement to the effect that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. With respect to the Staff comment letter, the individual responses of the Issuers to each of the Staff's comments are set forth below on the Issuers' behalf, together with the related comments. The headings and numbers of the responses coincide with the headings and comment numbers set forth in the comment letter. Please note that the S-4 has been updated to include financial statements and related disclosure for the Issuer's most recently completed fiscal quarter ended November 30, 2005. Further, as a result of the revisions made to the S-4, the page numbers the Staff referred to in its comment letter may no longer correspond to the page numbers of the S-4 filed herewith. The page January 31, 2006 Page 3 numbers in the Issuer's responses below correspond to the page numbers in the S-4 filed herewith. General 1. If you intend to rely on the position the staff took in Exxon Capital Holdings Corporation (May 13, 1988) and subsequent related no-action letters, please provide us with a supplemental letter indicating that you are registering your exchange offer in reliance on our position contained in these letters and also include the representations contained in Morgan Stanley & Co., Inc. (June 5, 1991) and Shearman & Sterling (July 2, 1993). Response: See the representations provided above. 2. Please disclose the information required by Item 19(a)(4) of Form S-4. Response: Page 30 of the prospectus has been revised to include a statement that no affiliate of the Issuers or the Subsidiary Guarantors has a direct or indirect interest in the Exchange Offer. 3. To the extent additional subsidiaries of the company come into existence and are made guarantors on the registered notes prior to the expiration of the offering period, we assume you will update the facing page, the signature pages, and financial statements to reflect the additional guarantors. Response: The table of additional registrants and signature pages in Amendment No. 1 includes a new subsidiary of the Issuer, Ashton Woods Transportation, LLC ("Ashton Transportation"), which became a guarantor of the registered notes after November 23, 2005, the date the initial Registration Statement on Form S-4 was filed. The most recent financial statements in the S-4 are for the fiscal quarter ended November 30, 2005. Since Ashton Transportation became a guarantor of the registered notes after November 30, 2005, the financial statements in the S-4 do not include Ashton Transportation. The Issuers have advised us that Ashton Transportation was formed solely purpose of acquiring an aircraft, which was acquired in December 2005, and that prior to and as of November 30, 2005, it did not have any assets or liabilities. Furthermore, the Issuers have also advised us that Ashton Transportation will be included in its financial statements for periods subsequent to November 30, 2005. The Issuers have also advised us that they will update the facing page and the signature pages, as requested, to add any additional subsidiaries that come into existence and are made guarantors of the registered notes prior to the expiration of the offering period. Furthermore, the Issuers have advised us that they will update the financial statements to include any additional subsidiaries that come January 31, 2006 Page 4 into existence and are made guarantors of the registered notes prior to the expiration of the offering period, provided that such additional subsidiaries became guarantors of the registered notes during the periods covered by the financial statements included in the S-4 at that time. Prospectus Summary, page 1 4. Please delete the last sentence of the first introductory paragraph since it is clear from the context. In addition, please relocate the second introductory paragraph to a more appropriate location in your prospectus. Response: The last sentence of the first introductory paragraph has been deleted from the S-4. The second introductory paragraph has been moved, and it now appears after the Issuer's address and phone number on the bottom of page 1. Please note that in order for the Issuers to refer to the 2004 and 2005 J.D. Power Awards for Highest in Customer Satisfaction with New Homebuilders in Atlanta, the independent company that conducted the surveys, J.D. Power and Associates, required the Issuers to include the information regarding the parameters of the surveys in the prospectus in proximity to the initial statements regarding the awards. Therefore, we believe it is appropriate to include this information in the prospectus summary. 5. Please substantially revise the disclosure under the heading "Business Strategy" as this disclosure merely repeats entire portions of your Business section. Your summary should be limited to providing a brief overview of the most important aspects of your business. If you believe this disclosure is necessary, reduce the disclosure to a bullet point presentation, with one sentence per bullet point. Response: The disclosure under the heading "Business Strategy" on page 1, has been revised to a bullet point presentation to reduce repetition. Material United States Federal Income Tax Consequences, page 6 6. We note the disclosure that your exchange offer "will" not result in a taxable event. Please reconcile with the disclosure in the second sentence of the first paragraph under the heading "Exchange Offer" on page 115 that your exchange offer "should" not result in a taxable event. Response: The statement on page 120 has been revised to indicate that the exchange offer "will" not result in a taxable event. Risk Factors, page 13 January 31, 2006 Page 5 Our home sales and operating revenues could decline due to macroencomic..., page 13 7. Item 503(c) of Regulation S-K states that issuers should not "present risk factors that could apply to any issuer or any offering." It appears that the risk described under this subheading could apply to nearly any issuer. Please revise to clearly explain how this risk specifically applies to you. Please also comply with this comment in risk factors seven, 11, 16, and 17. Response: Risk factors one, seven, 11 and 16 have been revised to explain how the risks apply to the Issuer's business. Risk factor 17 has been deleted in that the risk identified does not apply to the Issuer in a manner different from any issuer. Our operating results are variable, which may cause the value of the notes..., page 13 8. Please provide examples to illustrate the risk described under this subheading. Please also comply with this comment in risk factors three and 12. Response: Risk factors two, three and 12 have been revised to provide specific examples of the way these risks could impact the Issuer's business. We may incur additional operating expenses due to compliance..., page 15 9. Please quantify the risks described under this subheading. Please also comply with this comment in risk factors nine, 10, 13 and 14. Response: In order to quantify the risks described in risk factors eight, nine, 10, 13 and 14, the Issuer would need to make a number of assumptions. However, the assumptions that the Issuer would be required to make in order to quantify the risk would be based on speculation, rather than good faith estimates based on the experience of the Issuer's management. For example, in order to quantify the risks associated with fines and penalties for violations of environmental laws, the Issuer would be required to assume, among other things, what the potential violation might be; whether the fines and penalties would be imposed by local, state or federal authorities or some combination of thereof; and the fines and penalties that local, state and federal law impose for the assumed violation. Also, for example, in order to quantify the effect of higher insurance premiums as a result of construction and product defect liability claims, the Issuer would be required to assume what defect or defects caused the increase in premiums; the dollar amount of its exposure as a result of the assumed defect or defects; and how its insurers would calculate the increase in premiums as a result of the defect or defects. Because such quantifications would be based purely on speculation, we believe that providing them would not be useful to investors and could be January 31, 2006 Page 6 misleading. Consequently, the Issuer the does not believe that it is appropriate to amend risk factors eight, nine, 10, 13 and 14 in order to quantify the risks described therein. Although risk factors eight, nine, 10, 13 and 14 have not been revised to include a quantifications of the risks, where appropriate they have been revised to more particularly describe the impact each of these risks could have on the Issuer. We may be unable to generate sufficient cash to service our debt..., page 18 10. Please quantify your annual debt service costs and the impact of an interest rate change on these costs. For example, what would be the impact of a one percent increase in your interest rates? Response: Page 17 has been revised to include the Issuer's annual debt service costs for both its fixed rate and variable rate indebtedness. The revised disclosure also discusses the impact a 1% increase in interest rate would have on the Issuer's variable rate indebtedness. The Exchange Offer, page 23 11. Please apply the comments on this section set forth below to the section entitled "The Exchange Offer" beginning on page 4 and to Exhibit 99.1, as appropriate. Response: Each of the responses noted below resulting in changes to the Exchange Offer section of the Prospectus will also be reflected in Exhibit 99.1 to the extent applicable. Expiration Date; Extensions; Amendment, page 25 12. We note that you will announce the extension of the offer by making a public announcement prior to 5:00 p.m. on the next business day after the previously scheduled expiration date. Please revise the disclosure to comply with Rule 14e-1(d), which requires you to make the announcement prior to 9:00 a.m. Response: The disclosure on page 24 has been revised to clarify that any announcement regarding an extension of the offer will be made prior to 9:00 a.m. on the next business day after the previously scheduled expiration date. 13. We note that you reserve the right to "delay accepting any original notes." Please clarify in what circumstances you will delay acceptance. For example, if you are referring to the right to delay acceptance only due to any extension of the exchange offer, so state. January 31, 2006 Page 7 Response: The disclosure is intended to indicate that a delay in accepting any original notes will occur in connection with an extension of the exchange offer. To clarify this point, we have added an "and" to connect the concepts of delaying acceptance and of extending the exchange offer in the referenced bullet point on page 24. 14. We note the disclosure in the second sentence of the first paragraph on page 26. Please revise here and, as appropriate, elsewhere in your prospectus to indicate that in the event of a material change in your exchange offer, including the waiver of a material condition, you will extend your exchange offer period, if necessary, so that at least five business days remain in your exchange offer following notice of the material change. Response: The last sentence of the first paragraph on page 25 has been revised to read as follows: "In the event of a material change in the Exchange Offer, including the waiver of any material condition by the Issuers, we will extend the Exchange Offer, if necessary, so that at least five business days remain prior to the expiration date following the notice of the material change." We have also made similar revisions on page 29. Exchange Offer Procedures, page 26 15. We note the disclosure in the last sentence of the fifth full paragraph on page 27 that the exchange agent will return certain original notes "as soon as practicable following the expiration date." Please reconcile with the disclosure in the third sentence of the last paragraph under the heading "Withdrawal of Tenders" on page 29. In addition, Rule 14e-1(c) under the Exchange Act requires that you return the original notes "promptly" upon expiration or termination of your exchange offer. Please revise here and, as appropriate, elsewhere in your prospectus accordingly. Response: The sentence referenced on page 26 (formerly page 27) refers to the situation where original notes have not been properly tendered and thus are being returned to the holder. Generally, such return will be without cost to the holder, however, the Issuers may provide differently in a letter of transmittal requiring the holder to pay for the return of notes not properly tendered. The sentence on page 28 (formerly page 29) refers to a different situation where notes have been properly tendered, but are not accepted for exchange by the Issuers as a result of withdrawal, rejection of tender or termination of the exchange offer. The Issuers do not intend to require payment by the holders for the return of these notes in any circumstances. Because of these differences, the disclosure cannot be fully reconciled. The language on page 26 has been revised to make clear that the improperly tendered notes will be returned "promptly" as opposed to "as soon as practicable". January 31, 2006 Page 8 Conditions, page 29 16. Please disclose the basis upon which you will determine whether any condition has been satisfied. Please note that you must provide an objective standard for determining whether a condition has been satisfied. In this regard, we note that you currently use a "reasonable discretion" standard. Response: It appears that the language referenced did not correctly convey the information intended to be provided to the reader. Each of the conditions referenced is an objective condition as to which the Issuers are not able to use discretion in determining existence of the condition. The condition will either objectively exist or not exist based on factors outside of the Issuers' control. The discretion intended to be referred to is the Issuers' decision whether to waive the condition or take one of the other actions enumerated. Therefore, the lead-in language on page 29 has been revised to read as follows: "If any of the foregoing conditions exist, we may, in our reasonable discretion:" Use of proceeds, page 32 17. Please provide the information specified in Instruction 4 to Item 504. Response: As is noted under Use of Proceeds, the S-4 relates to an exchange offer of new securities for outstanding securities to satisfy obligations under a registration rights agreement entered into by the Issuers in connection with the issuance and sale of the original notes. The Issuers will not receive any cash proceeds from the issuance of the new notes. Therefore, there are no proceeds being used to repay indebtedness out of this offering, and we respectfully submit that the information described in Instruction 4 of the Item 504 is not applicable. The Issuers have referenced in the second paragraph under "Use of Proceeds" what the use of proceeds was with respect to the original issuance of the notes which occurred prior to this exchange offer. The information required by Instruction 4 of Item 504 was provided to investors when they were purchased in the prior private placement. Summary consolidated financial information and operating data, page 10 and Selected historical consolidated financial and operating data, page 34 18. Since you present a non-GAAP performance measure that excludes recurring expenses, please revise your current presentation to fully comply with our response to Question 8 of "Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures." It appears to us that your current presentation does not address the material limitations associated with the non-GAAP measure you present or the manner in which you compensate for these limitations. January 31, 2006 Page 9 Response: Additional disclosure regarding the limitations of EBITDA as a measure of performance has been added to note (2) on pages 9 and 35. Management's Discussion and Analysis of Financial Condition ..., page 37 Overview, page 37 19. Please expand your overview section to discuss the impact of raw material costs and your significant backlog on the financial condition and results of operations of your company. Response: Additional discussion has been added to the Overview section on page 37 to discuss the impact of raw material costs and the Issuer's backlog on the Issuer's financial condition and results of operations. 20. We note the disclosure in the second bullet point of each of the fourth, fifth and seventh paragraphs regarding the amount of your backlog. Please balance your disclosure by discussing the 15 to 20 percent of the backlog that you expect will be cancelled. We note the disclosure in the seventh full paragraph on page 42. Please also indicate what portion of the backlog you do not reasonably expect to fill in the current fiscal year. Response: After reviewing the Staff's comment above, the Issuer believes that disclosure regarding the cancellation of homes in backlog may have been confusing. The disclosure regarding backlog has been revised to clarify that backlog represents the number and value of new sale orders net of any cancellations that may have occurred during a reporting period. The Issuer has advised us that historically they have experienced a cancellation rate of 15%-20% of the gross new orders recorded during a reporting period, rather than a cancellation rate of 15%-20% of the homes in backlog. Pages 36, 42 and 44 have been updated to clarify this point. Furthermore, page 36 has been revised to include a statement that the Issuer believes that 80%-85% of its backlog as of November 30, 2005 will be sold during the current fiscal year. The Issuer believes that providing the disclosure regarding percentage of its backlog that will close during the current fiscal year, rather than the percentage of backlog that will not close during the fiscal year, is consistent with Item 101(c)(1)(viii) of Regulation S-K. 21. We note the disclosure in the third sentence of the sixth paragraph regarding the delays in receiving government approvals. Please disclose the reasons why you have experienced these delays. January 31, 2006 Page 10 Response: The disclosure in the third sentence of the sixth paragraph on page 37 regarding delays in receiving government approvals has been supplemented to explain the reasons for these delays. 22. We note the significant impact that land sales have had on your results of operations. Please revise MD&A to address the factors that you consider in determining if and when to sell land and address the extent to which you believe future land sales will impact your operating results. Response: Page 36 of the S-4 has been revised to explain the factors that the Issuer considers in determining if and when to sell land and the anticipated impact that future land sales will have on the Issuer's operating results. Results of Operations, page 38 23. Where there is more than one business reason for a change in a line item, please quantify the incremental impact of each individual business reason discussed in the overall change in the line item. For example, you disclose three reasons for the increase in general and administrative expenses for the period ended August 31, 2005 as compared to the period ended August 31, 2004, but you do not state the relative impact of each reason. Response: The "Management's Discussion and Analysis" for the period ended August 31, 2005 has been replaced with the "Management's Discussion and Analysis" for the three- and six-month periods ended November 30, 2005. Therefore the specific disclosures referred to in the Staff's comment have been deleted. However, we understand that the comment applies to the Issuer's "Management's Discussion and Analysis" in general. While in certain instances it would be possible to attribute relative impact of a number of reasons causing a change in a financial statement line item, the Issuer does not believe this information is material to the reader and would in fact serve to confuse them. The impact that various elements may have on results of operations will vary from time to time, and thus, the impact in any one period would not be informative as to the impact such item may have in the future. Where a factor is the primary reason for a change in a line item, the Issuer has and will continue to note that it is the primary factor. However, when there are a number of factors that contributed to the change where none is dominant, we submit it is more appropriate to describe the factors without attributing relative significance. Three Months Ended August 21, 2005 Compared to Three Months Ended...., page 41 24. Please disclose the reasons why you experienced a decline in the amount of land sales revenues. January 31, 2006 Page 11 Response: For the three month-period ended November 30, 2005, land sales actually increased over the same period during the prior fiscal year. However, for the six-month period ended November 30, 2005 land sales actually decreased slightly over the same period during the prior fiscal year. The revised disclosure on pages 40 and 41 includes an explanation of both the changes. 25. Please explain why homes in Dallas and Houston have lower gross margins than homes in Atlanta, Orlando and Phoenix. Response: Margins are driven by the cost to construct a home compared to the price that the home can receive in the particular market. The housing markets in Dallas and Houston have experienced difficulties recently due to economic and other factors in the Texas region, such as a series of job losses during the past several years in the telecommunications, technology and airline industries, that have adversely affected the ability of homebuilders to sell their homes as quickly as desired and with the gross margins desired. When compared to markets that have experienced employment gains, such as Atlanta, Orlando and Phoenix, the condition of the Dallas and Houston markets has not been as favorable to homebuilders, and as a result, homebuilders in Dallas and Houston have sold fewer homes and have obtained lower gross margins on the homes they have sold in Dallas and Houston. Please note that "Management's Discussion and Analysis" was updated for the period ended November 30, 2005, and as a result of the change in the factors affecting the Issuer's operating results for that period, the reference to lower margins in the Dallas and Houston markets has been deleted. Liquidity and Capital Resources, page 45 26. We note your disclosure in the last sentence of the first paragraph that you plan to finance your operations through the proceeds of the original notes. However, it appears that you used all of those proceeds to repay outstanding indebtedness. In this regard, we note your disclosure under the heading "Use of Proceeds" on page 32. Please revise to clarify your financing sources. In addition, please comply with this comment in third sentence of the first paragraph under the heading "Contractual Obligations" on page 46. Response: The reference in each of these sentences to the proceeds of the notes offering has been deleted. While the notes offering indirectly provided funding as a result of decreasing outstanding debt under the credit facility and making it available to the Issuer for future funding, the Staff is correct that the proceeds of that offering will not directly be used as a financing source and the reference is redundant to the reference to the senior unsecured credit facility. 27. We note the disclosure in the second paragraph. Please explain the reasons why your debt to capitalization ratio has increased. January 31, 2006 Page 12 Response: Page 45 of the S-4 has been updated to explain the increase in the Issuer's debt to capitalization ratio. Table of Contractual Obligations, page 47 28. Please provide an updated tabular disclosure of your contractual obligations that includes the senior subordinated notes and related interest payments. In addition, please explain why you believe excluding obligations of certain entities consolidated under FIN 46R is appropriate. At a minimum, it appears to us that you should quantify and disclose the time periods of these obligations in note (4). It also appears to us that you should quantify and disclose all land purchase options you have entered into and the time periods they are required to be exercised; and all obligations and land purchase options of your equity investments. Response: The table of contractual obligations has been updated to November 30, 2005 so that it includes the indebtedness under the original notes and related interest payments and reflects the use of proceeds from the issuance and sale of the notes. Further, we believe the reference in footnote 4 to the exclusion of obligations of certain FIN 46R consolidated entities was confusing and not completely accurate. The contractual obligations table includes obligations under specific performance lot option purchase agreements. The Issuer is also party to lot option purchase agreements that do not contain specific performance provisions. In those situations, the Issuer's only obligation relates to nonrefundable deposits, letters of credit posted in support of those contracts and any other nonrefundable amounts set forth in the contract. Therefore, the additional purchase price for the land under option is not an obligation of the company but simply is an option for future purchase. In order to clarify the Issuer's potential obligations with respect to all land and lot option purchase agreements, including those with and without specific performance obligations, additional tabular disclosure of obligations under these purchase contracts has been included on pages 48 and 49. Operating Cash Flow, page 45 Investing Cash Flow, page 46 Financing Cash Flow, page 46 29. Please explain the business reasons for each change between periods discussed in these sections. Response: The discussions of operating, investing and financing cash flows on pages 46 and 47 have been revised to include explanations of the business reasons for the changes in such cash flows. January 31, 2006 Page 13 Senior Unsecured Credit Facility, page 46 9.5% Senior Subordinated Notes, page 46 30. It appears that your debt agreements contain certain covenants. Please discuss the impact of these covenants on your operations, including any impact on your financial condition or results of operations. Response: A discussion regarding the covenants contained in the senior unsecured credit facility and the indenture governing the notes has been added on page 47. Please note that the indenture covenants are primarily incurrence covenants and thus do not have as significant an impact as those in the senior unsecured credit facility. This fact is noted in the disclosure included on page 47. Business, page 52 31. Please disclose the information required by Item 101(c)(iii) of Regulation S-K. Response: On page 61, the last paragraph contains a discussion of the sources and availability of raw materials for the Issuer's business. In the homebuilding industry, raw materials, such as lumber, construction supplies, roofing supplies, appliances and other materials for the home construction process, are readily available from numerous sources. As disclosed under "Construction" on pages 61 and 62 of the S-4, the Company enters into agreements with material suppliers after competitive bidding and has numerous suppliers of raw materials and services for its homebuilding business. Because of the general availability of raw materials in the Issuer's industry and the fact that it does not have long-term contractual commitments with any of its suppliers as disclosed, we respectfully submit that additional disclosure regarding raw materials is not necessary. 32. Under an appropriately titled heading, please discuss in reasonable detail the title services that you provide through two joint ventures. In addition, please disclose the percentage of your revenues derived from this business. Finally, please file the joint venture agreements relating to these entities as exhibits to your registration statement. Response: A discussion of the Issuers' title services has been added on page 61 under a heading of "Title Services". The title joint ventures are managed by an unrelated party. The Issuer's ownership position is approximately 49% and is accounted for under the equity method. Consequently, the joint ventures are not included in the computation of the Issuer's revenues. The joint venture agreements relating to the entities providing these title services have been filed as Exhibits 10.9, 10.10 and 10.11 to the S-4. January 31, 2006 Page 14 33. Please describe in reasonable detail the material terms of your home building contracts. For example, what are the rights of the parties with respect to the cancellation of a contract? Response: A description of the material terms of the Issuer's homebuilding contracts has been added on page 61. While the cancellation rights under each contract is driven by the law of the state in which the contract is entered into, a general summary of these rights is also provided. 34. Please disclose the basis for your statements in the first and fourth sentences of the introductory paragraph. Response: The statement regarding the Issuer's status as one of the largest private homebuilders is based both on the number of closings and on revenues. The first sentence in the introductory paragraph on page 54 has been revised to clarify this basis. The same clarification has been made on pages 1 and 36. The information in the fourth sentence regarding the standing of the company's markets is based on data provided by the U.S. Census Bureau. A reference to this entity has also been added in that sentence on page 54, as well as pages 1 and 37. 35. Please identify the nationally recognized survey company referenced in the last sentence of the introductory paragraph. Please also advise us as to whether this survey is generally available to the public, without payment of a subscription or other fees. Has this survey been published in widely circulated media or among members of the industry? If so, please tell us when and where. Response: The nationally recognized survey company referenced in the last sentence of the introductory paragraph is J.D. Power. However, J.D. Power refused to give the Issuer permission to use their name with respect to this particular survey because it is not publically published by J.D. Power. We believe that the Issuer's receipt of these rankings in the customer satisfaction survey is important support for information otherwise provided to investors, and therefore, respectfully submit that it is important to continue to disclose this information, notwithstanding J.D. Power's refusal to allow that their name be used. The Issuers and Subsidiary Guarantors have no relationship with J.D. Power, so the Issuers have modified the language to make it clear that the nationally recognized survey company is not an affiliate. Business Strategy, page 52 Provide Our Customers with Superior Value..., page 52 36. We note your statement that you are "recognized for building homes that offer superior design..." Please disclose the basis for this statement. January 31, 2006 Page 15 Response: The statement regarding the Issuers' recognition for building homes that offer superior design, etc. is based on the fact that the Issuers have received numerous awards for such quality. Therefore, the referenced sentence has been revised to indicate this basis. 37. We note the disclosure in the second sentence of the second paragraph. Please identify the organizations that sponsored the awards and whether you have any affiliation with these sponsors. Response: The awards referenced in this comment are generally awarded by local homebuilder associations. The disclosure on page 54 has been revised to indicate the identity of the various homebuilder associations. The disclosure has also been revised to state that other than the Issuer's or its subsidiaries membership in the sponsoring organizations, the Issuer and its subsidiaries do not have any other affiliations with these organizations. The parenthetical reference to (HBA) or (MAME) was intended to be a reference to these associations; however, based on the Staff's comment it is clear that these references were not apparent. 38. We note the disclosure in the third sentence of the second paragraph regarding the five star rating. Please identify the organization that awards this rating and whether you have any affiliation with this organization. Response: The five star rating for home design in Atlanta was also a J.D. Power award and the reference to J.D. Power in that sentence was intended to modify both awards mentioned. The sentence has been revised to better clarify that this is a J.D. Power award. Customer Financing, page 58 39. Please describe in greater detail the mortgage origination business and the percentage of your revenues derived from this segment of your business. Response: Additional detail regarding the Issuers' mortgage origination business has been included on page 61. The mortgage origination business is conducted through a joint venture with Wells Fargo Mortgage, LLC, an unrelated party, and the earnings of this joint venture are reported using the equity method. Consequently, the joint venture's revenues are not included in the computation of the Issuer's revenue. Rather, under the equity method, the joint venture's earnings are reported on the Issuer's income statement as a component of the line item "Earnings in unconsolidated subsidiaries." 40. Please explain the meaning of the term "mortgage capture rate." January 31, 2006 Page 16 Response: The mortgage capture rate represents the percentage of homes closed by the Issuer where the buyer used the mortgage origination services of Ashton Woods Mortgage, L.L.C. The disclosure in the last sentence under "Customer Financing" on page 61 has been revised to clarify this term. 41. Please file the joint venture agreements relating to Ashton Woods Mortgage, L.L.C. as exhibits to your registration statement. Response: The joint venture agreement relating to Ashton Woods Mortgage, L.L.C. has been filed as Exhibit 10.8 to the S-4. Competition and Market Factors, page 60 42. Please discuss your competition's advantages over you and how this affects your competitive position within your industry. Response: Additional information regarding competitors' advantages over the Issuer and how such advantages affect the Issuer's competitive position has been added on page 63. Government Regulation and Environmental Matters, page 60 43. Please disclose the information required by Item 101(c)(xii) of Regulation S-K. Response: Additional disclosure regarding the effect of compliance with environmental regulations on the Issuers' capital expenditures, earnings and competitive position has been provided on page 63. The Issuers do not have any material estimated capital expenditures for environmental control facilities at this time and thus no such disclosure is included. Legal Proceedings, page 61 44. We note that you refer to the potential impact of contingences on your "financial position" here and in note 8 on page F-21. Please revise your disclosures to address other financial measures, including results of operations and cash flows, or the financial statements as a whole. Please be advised that if you believe a material loss is reasonably possible, you should provide all the disclosures required by SFAS 5 and SAB 5:Y. Response: The disclosure under Legal Proceedings has been revised to indicate that none of the matters will have a "material adverse impact upon our consolidated financial statements as a whole if decided against us." The Issuers do not believe a material loss is reasonably possible as noted in Note 8 to the audited financial statements. January 31, 2006 Page 17 Management, page 62 45. Please disclose the information required by Items 402(g) and (h) of Regulation S-K. See Item 19(a)(7)(ii) of Form S-4. Response: Directors do not receive any compensation from the Issuers for their services as directors. A statement to this effect has been added to the management section. With respect to the information required by Items 402, at the time of filing the original S-4, no executive officers of the Issuers were subject to employment agreements or change of control agreements. Subsequent to such filing, an employment agreement was entered into between the Issuer and Tom Krobot on January 30, 2006. Disclosure regarding this agreement has been added beginning on page 66. Audit Committee Financial Expert, page 63 46. Please disclose whether Mr. Joffe is independent, as that term is defined under Item 7(3)(d)(iv) (sic) of Schedule 14A. See Item 401(h) of Regulation S-K. Please also refer to Item 19(a)(7)(i) of Form S-4. Response: Mr. Joffe does not meet the definition of independence under the rules promulgated by either Nasdaq or the New York Stock Exchange. Disclosure regarding the lack of independence has been added on page 67. Please note that because the Issuer does not have any securities listed on a national securities exchange or in an automated inter-dealer quotation system of a nation securities association, it is not required to have independent directors. Compensation Committee Interlocks and Insider Participants, page 63 47. Please revise this section to provide the information required by Item 402(j) of Regulation S-K. Response: Mr. Krobot was added to the board of directors of Ashton Woods USA L.L.C. shortly before the filing of the Form S-4. As the Staff correctly notes, Mr. Krobot's role as an employee of the Issuer should be noted under Compensation Committee Interlocks and Insider Participation, although he did not participate in compensation committee actions during the last fiscal year in that he was not added to the Board of Directors until after the fiscal year end. A statement to this effect has been added on page 68. Further, in accordance to the requirements of Item 402(j), a cross reference to the related party transactions disclosed on pages 71 and 72 has been included on page 68. Certain Relationships and Related Transactions, page 66 January 31, 2006 Page 18 48. Please state whether you believe that the transactions you describe in this section are on terms at least as favorable to your company as you would expect to negotiate with unrelated third parties. Response: The Issuers have informed us that they do believe that the transactions described under "Certain relationships and related transactions" are on terms at least as favorable to the Issuers as would be expected in negotiations with unrelated third parties. A statement to this effect has been added on page 72. 49. Please identify the related party referenced in the fifth paragraph. Response: Page 71 of the S-4 has been revised to identify Larelnor Developments Inc. as the related party discussed in the fifth paragraph. Description of Other Indebtedness, page 68 50. Please delete the second sentence of the introductory paragraph, as the summary should be materially complete. In addition, please clarify that the summary sets forth the material terms of the agreements governing your indebtedness. Response: The second sentence has been deleted as requested. In the first sentence the reference to "principal terms" has been changed to a reference to "material terms". Senior Unsecured Credit Facility, page 68 51. We note the statement in the fourth paragraph that after giving effect to the use of proceeds from the sale of the original notes that you will have no outstanding borrowings under the senior unsecured credit facility. Please reconcile with the capitalization table on page 33, which show there will be $23.7 million outstanding on an as adjusted basis. Response: The statement on page 68 of the original S-4 indicating that there would be no borrowings outstanding was incorrect. The information in the capitalization table on page 33 was correct. However, with the updating of the S-4 to November 30, 2005, the statements referenced in the Staff's comment have been deleted. 52. We note the disclosure in the sixth paragraph. Please disclose whether you are in compliance with these covenants as of the most recent practicable date. Response: Disclosure regarding compliance with covenants has been added on page 74 as requested. January 31, 2006 Page 19 Description of the Notes, page 70 53. Please remove the statement in the second sentence of the second paragraph that your summary is qualified by reference to the indenture, as it is inconsistent with Rule 411 of Regulation C. Response: The referenced sentence has been removed. Certain Covenants, page 75 54. We note the statement that the "indenture will contain, among others, the following covenants." It appears that the indenture is outstanding. Please revise accordingly. Response: The language has been revised accordingly. 55. Please disclose whether you are in compliance with the covenants under the indenture as of the most recent practicable date. Response: The sentence regarding compliance has been added on page 80. Where You Can Find More Information, page 120 56. Please delete the fourth sentence of the first paragraph. The disclosure in your prospectus regarding any contracts, agreements and other documents should be materially complete. Response: The referenced sentence has been deleted. Financial Statements Report of Independent Registered Public Accounting Firm, page F-2 57. Request that your auditors revise their report to include a conformed signature and the city and state where issued as required by Rule 2-02(a) of Regulation S-X. Response: A revised report is included in the S-4. Note 1 -- Summary of Significant Accounting Policies, Presentation, page F-7 58. Please demonstrate to us how you determined that that your homebuilding operations have similar economic characteristics as required by SFAS 131. Response: The Issuer conducts homebuilding operations in seven geographic markets, Atlanta, Dallas, Houston, Orlando, Phoenix, Tampa and Denver. January 31, 2006 Page 20 However, the Issuer has determined that it operates in one reportable segment--homebuilding, in that all of the Issuer's geographic markets sell similar products, have similar building processes, market to similar classes of customers and have similar economic characteristics, as described below. The economic characteristics that drive the sale of the Issuer's homebuilding products and the homebuilding industry generally are the same within each of the Issuer's geographic locations. The primary characteristics are: - employment growth and levels of unemployment; - general health of the overall local economy; - the availability of mortgage financing and the level of mortgage interest rates. The status of each of these economic characteristics in each of the Issuer's geographic locations may vary at a particular point in time (e.g., high unemployment in Dallas versus strong employment in Phoenix); however, the performance of each of them will similarly drive the sales and construction of the Issuer's homes with equal force regardless of location. For example, in geographic markets in which employment growth is strong, the Issuer is able to sell homes more rapidly and to charge a higher sales price. Consequently, the Issuer will obtain better gross margins in that particular market during the period of growth. Conversely, in markets in which the unemployment rate is high and employment growth is not strong, the sale of the Issuer's products will slow, which may in turn require the Issuer to offer incentives to potential homebuyers to buy its products. Those incentives will result in the Issuer earning lower gross margins from the sale of its homes in that market. Geographic market performance of the Issuer's line of products relative to unit sales and profitability fluctuate from year to year due to, among other things, the strength of local management, the location of the specific home sites available for sale, its product design relative to the target buyer profile (i.e., targeting the correct buyer and selecting the correct home size, style, amenity level, finish levels for the targeted buyer), the execution of its marketing and sales efforts, construction quality, weather conditions and the economic condition of the specific geographic market. The level of mortgage interest rates and mortgage underwriting guidelines also have significant effects on the performance of the Issuer's home sales, both new and used, throughout the country. January 31, 2006 Page 21 The Issuer has advised us that in accordance paragraph 17 of SFAS 131, it assessed whether the markets in which it operates exhibit similar long-term economic financial performance. The Issuer has also advised us that it evaluated its average gross margins in all of its markets for each of the past five years and its expectations with respect to future performance, i.e., average gross margins, in all of its markets and has concluded that over a period of years and changes in regional economic cycles, gross margins experienced in all homebuilding markets equalize and produce similar economic results, i.e., gross margins. As such, the Issuer believes that each of its markets has similar economic characteristics and therefore its markets meet the criteria set forth in Paragraph 17 of SFAS 131. Consequently, the Issuer believes that it operates in a single reportable segment -- homebuilding. The Issuer believes that this concluded is consistent with GAAP and with the presentation of other public homebuilders with similar operations, including those that operate in more than one geographic market and under more than one trade name. Note 1 -- Summary of Significant Accounting Policies, Inventory, page F-7 59. Please disclose how you allocate the costs you capitalize in inventory. Response: Page F-7 of the S-4 has been revised to include a description of how the Issuer allocates the costs capitalized to inventory. 60. Based on your disclosed policy related to how you assess inventory for impairments, it is not clear to us if you evaluate homes under construction and land held for sale in accordance with paragraph 34 of SFAS 144. Please revise and clarify your disclosed policy here and under critical accounting policies in MD&A or explain to us how your disclosed policy fully complies with SFAS 144. Response: The Issuer has advised us that it does evaluate finished inventories and land held for sale in accordance with paragraph 34 of SFAS 144. The second paragraph under the heading "Inventory" has been revised to make clear how the various types of real estate inventories are included in the valuations in order to comply with SFAS 144. The discussion of critical accounting policies on page 51 has been revised in order to clarify this point. January 31, 2006 Page 22 Note 1 -- Summary of Significant Accounting Policies, Revenue Recognition, page F-8 61. We note that you design, build and market single-family detached homes, town homes and stacked-flat condominiums. If applicable, please expand your revenue recognition policy for each type of unit you sell. In addition, please address the specific conditions required for you to recognize revenue related to land sales and explain to us if and how any additional land development activities, as disclosed under restricted cash, impact your policy. Response: We have been informed by the Issuer that its revenue recognition policy does not differ by the type of unit sold. Therefore, we submit that the disclosure in the note on page F-8 does not require revision. Revenue is recognized with respect to land sales after all the criteria of paragraph 5 of SFAS 66 have been met. There are no other conditions to the recognition of revenue; therefore, we respectfully submit that additional disclosure is not required. The restricted cash escrow referenced under "Restricted Cash" is related to a unique situation in Denver for certain immaterial land activities. It is not expected that additional land development activities will result in a similar escrow. Further, the escrow of restricted cash does not impact the Issuer's revenue recognition policy. Therefore, we respectfully submit that additional disclosure is not required. Note 1 -- Summary of Significant Accounting Policies, Warranty Costs, page F-9 62. We note that you provide various warranties and that you establish a liability on a per home basis for expected warranty-related costs. Based on your disclosures here and under critical accounting policies in MD&A, it is not clear to us if your warranty liability includes all warranties or only those that are self-insured. If your warranty liability does not include all warranties, please explain to us how your presentation complies with FIN39. Response: The warranty liability includes all warranties. Note 10 -- Subsequent Event, page F-21 63. Based on your disclosures and the structure of the senior subordinated notes you issued, it appears to us that you are attempting to comply with Rule 3-10(d)(note 5) of Regulation S-X. If true, please revise the notes to your audited financial statements to disclose: - the parent company co-issued the securities; - the parent company has "no independent assets or operations"; - the subsidiary co-issuer is "a 100% owned finance subsidiary of the parent company"; January 31, 2006 Page 23 - all of the parent company's subsidiaries, other than the subsidiary co-issuer, have guaranteed the securities; - all of the guarantors are "100% owned"; and - all of the guarantees are "full and unconditional" and "joint and several". If each of the above is not true, please tell us why you believe your current presentation complies with Rule 3-10. In addition, please provide the narrative disclosures specified in Rules 3-10(i)(9) and (i)(10). Response: The above factors are all accurate and additional disclosure has been added to Note 6 on page F-20 as requested. The Issuers have advised us that there are no significant restrictions on the ability of the Issuers or any subsidiary guarantor to obtain funds from its subsidiaries, nor do any of the conditions described in Rule 4-08(c) of Regulations S-X exist. Therefore, additional narrative disclosure is not required and thus, has not been added. Part II Information Not Required in Prospectus Item 21. Exhibits and Financial Statement Schedules, page II-10 64. Please file each of the following as an exhibit to your registration statement: - the note disclosed in the last paragraph under the heading "Certain Relationships and Related Transactions" on page 66; and - the note disclosed under the heading "Promissory Note" on page 69. Response: The notes have been filed as Exhibits Nos.10.12 and 10.13 to the S-4. Item 22. Undertakings, page II-13 65. Please provide the undertakings required by Item 512(a) of Regulation S-K. Response: The undertakings have been added. 66. Please delete the first undertaking, as you are not permitted to incorporate your subsequent Exchange Act documents into your prospectus. Response: The undertaking has been removed. Signatures 67. It does not appear that Ashton Woods Construction LLC signed the registration statement. We note that Ashton Construction signed the registration statement on page II--18, but this entity does not appear to be a co-registrant. Please revise accordingly. January 31, 2006 Page 24 Response: The signature pages have been corrected. 68. We note that Ashton Houston Residential LLC signed the registration statement twice on page II-15 and that Ashton Houston Development LLC did not sign the registration statement. Please revise accordingly. Response: See response to Comment 67. Exhibit 25.1 69. Please advise us as to the authority you relied upon to include the disclaimer set forth under the heading "Note" on page 3. Response: An updated Exhibit 25.1 has been filed with the S-4, and the updated Exhibit 25.1 does not contain the disclaimer noted in the Staff's comment. 70. Please disclose the filing date of the registration statement from which you have incorporated Exhibits 1 through 4. Response: The updated Exhibit 25.1 filed with the S-4 contains the date of the registration statement from which Exhibits 1-4 are incorporated by reference. Exhibit 99.1 71. Please delete the language requiring a security holder to acknowledge or certify that he or she has "read", "reviewed" or "understands" all of the terms of your exchange offer. Response: The language has been deleted from pages five and 16 of Exhibit 99.1. 72. We note the disclosure in the section entitled "Irregularities" regarding waiving conditions to your exchange offer. In the event that you waive a condition, you must waive it as to all security holders. Please revise accordingly. Response: The disclosure has been revised as requested. * * * * If you have any questions regarding the foregoing responses, please call the undersigned at (404) 815-2287 or Jay Rodriguez at (404) 815-2283. Sincerely, /s/ Elizabeth Hardy Noe for PAUL, HASTINGS, JANOFSKY & WALKER LLP -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.8

                                                                    Exhibit 10.8


                    AGREEMENT OF LIMITED LIABILITY COMPANY OF
                           ASHTON WOODS MORTGAGE, LLC


This Agreement of Limited Liability Company (the "Agreement"), is entered into
September 23, 200? and between Wells Fargo Ventures, LLC, with its principal
place of business at 1 Home Campus, Des Moines, Iowa 50328-0001, ("Wells Fargo
Member") and Ashton Woods USA, LLC, with its principal place of business at 1405
Old Alabama Road, Suite 120, Roswell, GA 30076, ("Marketing Member") who do
hereby form the limited liability company agreement of Ashton Woods Mortgage,
LLC (the "Company"), pursuant to the Delaware Limited Liability Company Act,
upon the following terms and conditions:

                                    ARTICLE I
                       Definitions and Glossary of Terms

Section 1.1 Definitions. The following terms used in the Agreement shall have
(unless otherwise expressly provided herein or unless the context otherwise
requires) the following respective meanings:

"Accountants" means KPMG, LLP, or such other certified public accountants as the
Operating Committee may select,

"Act" shall mean the Delaware Limited Liability Company Act, 6 Del. C. Section
18-101 through Section 18-1107, as amended from time to time.

"Affiliate" means any person or entity that directly or indirectly, through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the person or entity specified.

"Agreement" shall mean this
Agreement of Limited Liability Company of Ashton Woods Mortgage, LLC.

"Budget" means the budget established annually pursuant to Section 8.3.

"Capital Account" means, with respect to any Unit Holder, the account maintained
for such Unit Holder in accordance with the provisions of Section 4.1 hereof.

"Capital Contribution" shall mean any contribution to the capital of the Company
in cash or property by a Member whenever made.

"Certificate" means the Certificate of Formation of the Company and any and all
amendments thereto and restatements thereof filed on behalf of the Company with
the office of the Secretary of State of the State of Delaware pursuant to the
Delaware Act.

"Closing Date" shall mean the date of execution of this Agreement.

"Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference
to any specific provision of the Code or any regulations thereunder shall be
deemed to refer also to any successor provisions thereto.

"Company" shall mean Ashton Woods Mortgage, LLC, the Delaware limited liability
company governed by this Agreement.

"Company Distributions" shall mean cash or property which is distributed
pursuant to Section 5.3 or Section 11.7 of this Agreement.

"Company Expenses" shall mean all expenditures and costs paid out by the Company
in the course of the conduct of its business.




"Company Revenues" shall mean all receipts from operations and use of assets
received by the Company and all other income, receipts, or gain received by the
Company in the course of the conduct of its business.

"Fiscal Year" means (i) the period commencing upon the formation of the Company
and ending on December 31, of the year of formation, (ii) any subsequent twelve
(12) month period commencing on January 1 and ending on December 31, or (iii)
any portion of the period described in Clause (ii) of this sentence for which
the Company is required to allocate Profits, Losses and other items of company
income, gain, loss or deduction pursuant to Article V hereof.

"Intercompany Net Cash Balance" means the net of the Company's funds on deposit
with Wells Fargo and any amounts owed by the Company to Wells Fargo excluding
advances by Wells Fargo pursuant to Section 8.8.

"Interest" shall mean the personal property ownership right of a Member in the
Company and shall entitle such Member to an allocation of Company Revenues and
Company Expenses pursuant to Article V of the Agreement and to a share of the
Company Distributions pursuant to Article V of the Agreement. Each Member's
Interest is evidenced by and composed of the Units owned by that Member, and
such allocation and share of Company Revenues, Company Expenses, and Company
Distributions shall be determined based upon the number of Units owned by such
Member.

"Loan Policies" shall mean those policies, standards and procedures of Wells
Fargo, as amended from time to time, relating to residential mortgage loan
origination by Retail Offices including the All-Office Memos, Loan Production
Memos, Product Catalogs, Conventional Loan Standards Manual, VA Handbook, FHA
Underwriting Manual, Compliance Manual, Disclosure Manual, Code of Ethics,
Ncyclopedia and other communications with their terminology adjusted to apply
to the Company rather than to Retail Offices.

"Losses" shall mean the taxable loss of the Company as determined for federal
income tax purposes under Code section 703(a) including items separately stated
pursuant to section 703(a)(1).

"Managing Officer" means the individual responsible for the day to day operation
of the Company.

"Marketing Member" means Ashton Woods USA, LLC, a Nevada limited liability
company.

"Member" shall mean a person who has been admitted to the Company as a member as
provided in the Agreement and section 18-301 of the Act.

"Net Cash Available" means cash on deposit or cash equivalents which includes
the Intercompany Net Cash Balance less amounts required to maintain minimum
regulatory net worth requirements (in excess of other Company assets if
otherwise insufficient, or if cash is required) and less such other amounts the
Operating Committee may determine are required to be set aside in reserve to
fund future operating and capital expenditures.

"Operating Committee" means the Operating Committee of the Company, constituted
as provided in Section 6.1.

"Person" includes any individual, association, partnership (general or limited),
joint venture, trust, estate, limited liability company, corporation or
partnership, or other legal entity or organization.

"Profits" shall mean the taxable income of the Company as determined for federal
income tax purposes under Code section 703(a) including items separately stated
pursuant to section 703(a)(1).

"Retail Offices" means Wells Fargo's wholly-owned loan production offices in
operation from time to time,

                                                                         9/15/03

                                       2


"Termination Date" means the earliest to occur of a Section 11.3 Termination
Date, a Section 11.4 Termination Date, a Section 11.5 Termination Date, a
Section 11.6(b) Termination Date or a Section 11.6(c) Termination Date.

"Units" with respect to any Member, shall mean the ownership interests of the
particular Member which quantify the share of that particular Member in the
right, privilege, or interest being addressed.

"Unit Holder" means any person who holds one (1) or more Units, regardless of
whether such Person is a Member and regardless of whether such Units were
initially acquired by such Person from the Company or by assignment from another
Unit Holder.

"Wells Fargo" shall mean Wells Fargo Home Mortgage, Inc., a California
corporation.


                                   ARTICLE II
                      Formation, Name and Registered Agent

Section 2.1 Formation. Wells Fargo Member and Marketing Member, by execution of
this Agreement and the filing of the Certificate with the Delaware Secretary of
State, hereby enter into and form the Company as a limited liability company
under and pursuant to the Delaware Act. The name and mailing address of each
Member or Unit Holder shall be listed on the Schedule of Capital Contributions
attached hereto as Exhibit A. The Company shall be required to update the names
and addresses on the Schedule of Capital Contributions from time to time as
necessary to accurately reflect the information set forth therein. Any amendment
or revision to the names and addresses on the Schedule of Capital Contributions
made in accordance with this Agreement shall be deemed a supplement to and not
an amendment of this Agreement. Any reference in this Agreement to the Schedule
of Capital Contributions shall be deemed to be a reference to the Schedule of
Capital Contributions as supplemented and in effect from time to time. The
Members agree that the rights, powers, duties and liabilities of the Members and
Managing Officer shall be as provided in the Delaware Act, except as otherwise
provided in this Agreement.

Section 2.2 Name and Registered Agent. The name of the Company is Ashton Woods
Mortgage, LLC. Its registered agent is Corporation Service Company or such other
agent as the Members may hereafter determine.

                                   ARTICLE III
                                Business Purpose

Section 3.1 Character of the Business. The purpose of the Company shall be to
carry on the business of residential mortgage lending, to engage in all legal
activities related thereto or in furtherance thereof and to engage in such other
activities as the Operating Committee shall determine from time to time.

Section 3.2 Other Qualifications. The Members agree that the Company shall file
or record such documents and take such other actions under the laws of any
jurisdiction as are necessary or desirable to permit the Company to do business
in any such jurisdiction as is selected by the Company and to promote the
limitation of liability for the Members in any such jurisdiction.

Section 3.3 Prohibited Activities. The Company shall not participate in any
activity that violates the Real Estate Settlement Procedures Act of 1974 or any
other law or regulation. The Company shall not engage in any prohibited
activities for a national bank or its subsidiaries and shall obtain any required
regulatory approvals for a national bank subsidiary before commencing any
activity. As an indirect subsidiary of a national bank, the Company consents to
supervision and examination by the Office of the Comptroller of the Currency.



                                       3


Section 3.4 Limitations on Other Activities.

         (a) Except as provided in this section, this Agreement shall not be
deemed to restrict in any way the freedom of either Member or any Affiliate to
conduct any business or activity whatsoever, including, but not limited to, the
acquisition, leasing, operation, management, syndication, brokerage,
development, improvement and exploitation of real property, investment therein
or financing thereof.

         (b) While it is a Member, Marketing Member shall not, nor shall it
suffer or permit any of its Affiliates, other than the Company, to engage in the
residential mortgage lending business, directly or indirectly, either by
themselves or through a joint venture or any other similar arrangement with any
other party that would permit Marketing Member or any of its Affiliates to
engage or participate in such residential mortgage lending business.

         (c) During the term of this Agreement and for one (1) year following
the Termination Date, Marketing Member and its Affiliates will not, directly or
indirectly, hire any employees of the Company or of Wells Fargo or solicit any
employees of the Company or of Wells Fargo for the purpose of hiring or inducing
them to leave their employment with the Company or Wells Fargo. Upon dissolution
of the Company, employees of the Company and Wells Fargo for purposes of this
subsection shall include anyone who was employed by the Company or Wells Fargo
during the six (6) months prior to the Termination Date. The restrictions of
this subsection shall survive termination of this Agreement.

         (d) Neither Member shall be accountable to Company or to the other
Member for any activity or business permitted under this Article 3 except for
the business of Company. Neither Member shall have any right by virtue of this
Agreement or by their status as a Member to be apprised of the independent
business or activities of the other Member, nor to be allowed to participate
therein or to the income or profits derived therefrom. Neither Member shall be
required to devote full time to Company, but only so much time as may be
necessary to accomplish the purposes of Company and the duties specifically set
forth in any agreements related to Company,

Section 3.5 Transactions Involving the Members.

         (a) The Marketing Member shall cooperate with and actively promote the
Company and the Company's loan products to its customers consistent with all
applicable legal requirements. Ail aspects of the Company's marketing efforts
shall be subject to the approval of the Operating Committee, including but not
limited to cost, approach, target audience, frequency, etc.

         (b) [Reserved.]

         (c) Except as may be expressly provided for in this Agreement or in any
agreements executed between Company and any Member or as approved by the
Operating Committee, no payment will be made by Company to any Member for the
services of such Member or the employees of such Member.

         (d) Marketing Member and its Affiliates shall provide Wells Fargo with
the same access to its offices as it provides to any other mortgage lender
(other than Company).

         (e) Within 45 days of the end of each calendar year or as soon
thereafter as it becomes available, Marketing Member shall provide Company with
the number and location of Marketing Member's offices. On a monthly basis within
a reasonable time after the information is available, Marketing Member shall
provide Company with the market share, transaction volume in a dollar amount and
the number of transactions for Marketing Members previous month.

                                                                         9/15/03

                                       4


                                   ARTICLE IV
                                Capital Accounts

Section 4.1 Capital Accounts. A separate Capital Account shall be maintained for
each Member of the Company. Each Member's Capital Contributions and its share of
all Company Revenues shall be credited to its Capital Account and each Member's
share of all costs, expenses, losses and Distributions {including return of
capital) of the Company shall be debited to its Capital Account, all as
allocated under this Agreement. Each Member's initial Capital Contribution, as
reflected on Exhibit A, is due and payable upon execution of this Agreement. Any
subsequent Capital Contribution pursuant to Section 8.8 shall be due and payable
within 15 days of receipt of notice of the need for the additional Capital
Contribution.

Section 4.2 Units. A Unit Holder's limited liability company interest in the
Company shall be represented by the "Unit" or "Units" held by such Unit Holder,
Each Unit Holder's respective Units shall be set forth on the Schedule of
Capital Contributions attached hereto, as supplement from time to time. Each
Unit Holder hereby agrees that its limited liability company interest in the
Company and its Units shall for all purposes be personal property. A Unit Holder
shall have no interest in specific Company property.

Section 4.3 Status of Capital Contributions.

         (a) A Unit Holder's Capital Contributions may be returned to it, in
whole or in part, at any time, but only (i) with the consent of all Members or
(ii) pursuant to a dissolution of the Company in accordance with Section 11.7.
Any such returns of Capital Contributions shall be made to all Unit Holders in
proportion to the number of Units then held by each Unit Holder. No Member shall
have priority over any other Member either as to the return of its Capital
Contribution or as to profits or distributions except as specifically set forth
in this Agreement. Notwithstanding the foregoing, no return of a Unit Holder's
Capital Contributions shall be made hereunder if such distribution would violate
applicable state law. Under circumstances requiring a return of any Capital
Contribution, no Unit Holder shall have the right to demand or receive property
other than cash, except as may be specifically provided in this Agreement.

         (b) Except as provided in Section 8.8 and by applicable law, the
Members shall be liable only to make their Capital Contributions pursuant to
Section 4.1 hereof, and no Member or Assignee shall be required to lend any
funds to the Company or, after a Member's obligations to make its Capital
Contributions pursuant to Section 4.1 hereof shall have been satisfied in full,
to make any additional Capital Contributions to the Company. No Unit Holder
shall have any personal liability for the repayment of any Capital Contribution
of any other Member or Assignee.


                                    ARTICLE V
              Allocation of Revenues, Expenses, Profits and Losses

Section 5.1 Company Revenues and Expenses. All Company Revenues and Company
Expenses shall be utilized to determine Profits and Losses.


Section 5.2 Allocation of Items for Federal Income Tax Purposes. To the extent
permitted by law, all items of Company taxable income, gain, loss, credit, and
deduction recognized or allowable for Federal income tax purposes shall be
allocated and credited or charged to the Members in the same manner as the
revenues, income, receipts, costs, or expenses giving rise to such items of
taxable income, gain, loss, credit, or deduction are allocated and credited or
charged. Any Member allocated and charged a particular cost or expense shall be
entitled to such deductions or credits as are attributable to such cost or
expense in computing such Member's taxable income or tax liability to the
exclusion of any other Member. Upon the sale or other transfer of any asset of
the Company, any recapture of depreciation deductions or other deductions
previously taken shall be allocated to the Member to whom such deductions were
originally allocated, and any recapture of investment tax credit shall be
allocated to the Member to whom such credit was originally allocated.

                                                                         9/15/03

                                       5


Section 5.3 Distribution of Cash. All Company Distributions shall be made among
the Members in proportion to their respective Units. Cash of the Company which,
in the judgment of the Members, is not required to meet obligations of the
Company nor reasonably necessary for future Company operations shall be
distributed not less frequently than quarterly to the Members in proportion to
their respective Units, not later than forty-five (45) days after the end of
each quarterly period with respect to which such distribution is being made.

Section 5.4 Allocation of Profits. After giving effect to the special
allocations provided in Section 5.6 hereof, Profits for any fiscal year shall be
allocated to the Members as follows:

         (a) First, to the Members until the aggregate Profits allocated to the
Members for such fiscal year and all previous fiscal years pursuant to this
Section 5.4(a) are equal to the aggregate Losses allocated to the Members
pursuant to Section 5.5 hereof for all previous fiscal years. The Profits
allocated to the Members pursuant to this Section 5.4(a) shall be allocated
among them in proportion to the respective amounts of aggregate Losses allocated
to each Member under Section 5.5 hereof for all previous fiscal years.

         (b) Thereafter, all remaining Profits shall be allocated to the Members
pro rata in proportion to their respective Units.

Section 5.5 Allocation of Losses. After giving effect to the special allocations
provided in Section 5.6, Losses for any fiscal year shall be allocated to the
Members that have sufficient basis in their membership interests to enable them
to deduct the Losses. Any remaining Losses shall then be allocated to the
Members pro rata in proportion to their respective Units.

Section 5.6 Special Allocations.

         (a) Regulatory Allocations. The provisions of the final and temporary
Treasury Regulations promulgated under Code Section 704(b) relating to the
qualified income offset, minimum gain chargeback, minimum gain chargeback with
respect to nonrecourse debt, the allocation of nonrecourse deductions and the
allocation of items of deduction, loss or expenditure relating to nonrecourse
debt are hereby incorporated by this reference and shall be applied to the
allocation of Company items of income, gain, loss or deduction in the manner
provided in such Treasury Regulations. However, the Members do not intend that
the "deficit restoration obligation" described in Section 1.704-1(b)(2)(ii)(c)
of the Treasury Regulations or any successor provision thereto be incorporated
into this Agreement. For purposes of this Section 5.6(a), nonrecourse
deductions shall be allocated among the Members in proportion to their
respective Units.

         (b) Curative Allocations. In the event that items of income, gain, loss
or deduction are allocated to one or more Members pursuant to Section 5.6(a)
above, subsequent items of income, gain, loss or deduction will first be
allocated (subject to the provisions of Section 5.6(a)) to the Members in a
manner designed to result in each Member having a Capital Account balance equal
to what it would have been had the original allocation of Profits or Losses or
items thereof pursuant to Sections 5.6(a) not occurred.

Section 5.7 Tax Allocations; Code Section 704(c).

         (a) Contributed Property. In accordance with Code Section 704(c) and
the Treasury Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the capital of the Company shall, solely
for tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal
income tax purposes and its fair market value at the time of its contribution to
the Company.

         (b) Revalued Property. Allocations of income, gain, loss and deduction
with respect to any asset revalued in accordance with Treasury Regulations under
Code Section 704 shall take account of any

                                                                        09/15/03

                                       6


variation between the adjusted basis of such asset for federal income tax
purposes and its fair market value in the same manner as under Code Section
704{c) and the Treasury Regulations thereunder and as required by Treasury
Regulation Section 1.704-1(b)(2)(iv)(g).

         (c) Allocation Solely for Tax Purposes. Any elections or other
decisions relating to allocations described in subsections (a) or (b) of this
Section 5.7 shall be made by the Members in any manner that reasonably reflects
the purposes and intention of this Agreement. Allocations pursuant to this
Section 5.7 are solely for purposes of federal, state and local taxes and shall
not affect, nor in any way be taken into account in computing any Member's
Capital Account or share of Profits, Losses or other items or distributions
pursuant to any provision of this Agreement.

Section 5.8 Other Allocation Rules.

         (a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined by the Members using any permissible method under Code Section 706
and the Treasury Regulations thereunder.

         (b) Except as otherwise provided in this Agreement, all items of
Company income, gain, loss, deduction, and any other allocations not otherwise
provided for shall be divided among the Members in the same proportions as they
share Profits or Losses, as the case may be, for the year.

         (c) Except as otherwise provided in this Agreement, all items of
income, gain, loss or deduction for federal income tax purposes shall be
allocated to the Members in the same manner as the corresponding book
allocations of such items as provided in this Article V.

         (d) Upon (1) the admission of any new Member to the Company; (2) the
liquidation of a Member's Interest in the Company; (3) the making of any
additional Capital Contributions or partial withdrawals by a Member which
changes a Member's relative Interest (other than a de minimus amount) in the
Company; and immediately before liquidation of the Company, all the property of
the Company shall be revalued at its fair market value, and the Members' Capital
Accounts shall be adjusted to reflect the manner in which the unrealized income,
gain, loss or deduction inherent in such property (that has not been reflected
in adjustments to the Members' Capital Accounts previously) would be allocated
among Members if the property were sold at its fair market value on the
valuation date.

Section 5.9 Consistent Tax Reporting. Each Member hereby agrees, for state and
federal income tax purposes, to report its respective share of Company items of
income, gain, loss, deduction or credit in a manner consistent with the tax
treatment adopted by the Company.

Section 5.10 Tax Warranties. Each Member agrees that no other Member has made
any representations or warranties as to the treatment or characterization, for
federal income tax purposes, of the contributions, distributions, or allocations
hereof, except as provided for herein. Each Member understands that Company
taxation and the transactions contemplated by this Agreement involve complex
issues of federal income taxation and each Member has been advised to and has
had the opportunity to obtain competent independent tax counsel with respect to
this Agreement and the transactions contemplated hereby.

Section 5.11 Tax Elections. All elections by the Company for federal income tax
or other tax purposes shall be made by the unanimous agreement of the Members.

Section 5.12 Tax Matters Member.

         (a) Wells Fargo Member shall serve as the "Tax Matters Member" of the
Company under the Code. Each Member, by the execution of this Agreement,
consents to such designation of the Tax Matters Member and agrees to execute,
certify, acknowledge, deliver, swear to, file and record at the appropriate
public offices such documents as may be necessary or appropriate to evidence
such consent.                                                            9/15/03



                                       7


Wells Fargo Member shall take such action as may be necessary to cause every
Member to become a notice partner within the meaning of Code Section 6223.

         (b) The Tax Matters Member shall be indemnified and reimbursed for all
expenses, including legal and accounting fees, claims, liabilities, losses and
damages incurred in connection with its serving in that capacity.
Notwithstanding the preceding sentence, the Tax Matters Member shall not be
entitled to indemnification for such costs and expenses if such Member has not
acted in good faith.


                                   ARTICLE VI
                           Management of the Company

Section 6.1 General. The overall management and control of the business and
affairs of the Company shall be vested in the Operating Committee consisting of
four individuals, with each Member appointing two (2) individuals to the
Operating Committee. The Company may have a Managing Officer appointed by the
Operating Committee. The Managing Officer of the Company shall not be appointed
to the Operating Committee. The number of individuals on the Operating Committee
may be reset by the Operating Committee from time to time, provided that each
Member shall appoint an equal number of individuals to the Operating Committee.
Each Member may remove and replace the individuals appointed by it at any time
and for any reason. Any vacancy on the Operating Committee shall be filled by
the Member that had appointed the individual to the position that has become
vacant.

Section 6.2 Operating Committee Procedures. Except where herein expressly
provided to the contrary, all decisions with respect to the management and
control of the Company shall be made and agreed to by the Operating Committee
and shall be binding on the Company. All decisions made by the Operating
Committee shall be unanimous, shall be documented in writing by an individual
designated by the Operating Committee and shall be promptly sent to each
individual on the Operating Committee. A quorum of the Operating Committee shall
consist of one individual from each Member. Action may be taken by the Operating
Committee by telephone conference, by meeting in person, by written action in
lieu of a meeting or in such other manner approved by all Members.

Section 6.3 Loan Policies. The Company expressly adopts the Loan Policies
effective on the Closing Date as provided to the Company by Wells Fargo. Any
updates to the Loan Policies issued by Wells Fargo shall automatically be
adopted by the Company unless the Operating Committee expressly decides not to
adopt a particular policy. Any employee who violates the Loan Policies shall be
subject to termination unless the Operating Committee expressly decides not to
terminate the employee.

Section 6.4 Major Decisions. No act shall be taken or funds expended or
obligation incurred by the Company, any individual on the Operating Committee,
or the Managing Officer with respect to a matter within the scope of any of the
major decisions ("Major Decisions") affecting the Company, as defined below,
unless such Major Decision has been approved by the members. A decision shall be
a Major Decision if it satisfies one of the following:

         (a) Decisions relating to the selection, evaluation, retention and
compensation of the Managing Officer or any other executive officers of the
Company as may be appointed by the Operating Committee;

         (b) Decisions regarding new business ventures and material deviations
by the Company from the Loan Policies in effect from time to time;

         (c) Decisions relating to the hiring policy, compensation, terms of
employment or termination of non-clerical or non-support staff employees of the
Company;

         (d) Decisions relating to matters involving transactions, expenditures,
commitments or other contractual obligations (or groups of similar transactions
or such other events) in an amount in excess of
                                                                         9/15/03


                                       8


$5,000 except transactions to originate, fund and sell residential real estate
mortgage loans that are in the day-to-day course of the Company's business;

         (e) Decisions relating to obtaining any financing for the Company
pursuant to Section 8.8;

         (f) Decisions relating to the terms, conditions, limits and deductions
of any risk financing program in addition to the program provided by Wells Fargo
or its Affiliate pursuant to the Service Agreement referenced under Section 6.8;

         (g) Decisions related to establishing or maintaining cash, cash
equivalents or reserves for the Company;

         (h) Decisions relating to amendment or termination of the Service
Agreement referenced under Section 6.8 and obtaining a substitute service
provider upon termination of such Service Agreements; and

         (i) Any other decision or action referred to the Operating Committee by
an individual on the Operating Committee which by any provision of this
Agreement or by law is required to be approved by the Operating Committee.

Section 6.5 Managing Officer. The Managing Officer shall be responsible for the
implementation of the decisions of the Operating Committee and for conducting
the ordinary and usual day-to-day business and affairs of the Company, as
limited by this Agreement. The Managing Officer of the Company, shall in good
faith use his or her best efforts to implement or cause to be implemented all
Major Decisions approved by the Operating Committee and to conduct or cause to
be conducted the ordinary and usual business of the Company in accordance with
and subject to the direction of the Operating Committee and the Loan Policies
and in accordance with the business plan and current Budget approved by the
Members. The Managing Officer may, except as otherwise determined by the
Operating Committee, delegate in writing to other officers, employees or agents
of the Company matters for which the Managing Officer may be responsible in
accordance with this section, but the Managing Officer shall continue to be
responsible for such matters. The initial and successor managing officers are
listed on the Schedule of Initial and Successor Managing Officers.

Section 6.6 FHA Matters. Section 6.6 shall be limited in application solely to
any and all matters involving the Federal Housing Administration {"FHA") of the
United States Department of Housing and Urban Development and FHA-insured loans.
In the event of any conflict between the provisions set forth in this Section
and any other provision of this Agreement, the provisions set forth in this
Section will take precedence over all other provisions of this Agreement with
respect to all FHA matters. The Managing Officer is designated to deal
exclusively with FHA in all aspects of the FHA mortgage insurance program,
including, without limitation, the making of applications for mortgage insurance
claims and collecting the benefits of mortgage insurance for the Company. The
Managing Officer is hereby appointed as the managing agent (the "Managing
Agent") of the Company with respect to FHA matters. The Operating Committee
may choose a person other than the Managing Officer as Managing Agent on the
condition that there will at any time be one and only one Managing Agent with
which FHA deals exclusively. Any such substitute person shall have the rights
and responsibilities of the Managing Officer as Managing Agent under this
Section. If (a) the Managing Agent resigns or (b) another Managing Agent is
appointed, FHA will be immediately advised of such event and, if applicable, the
name of the new Managing Agent. The Company shall inform FHA of any amendment to
this Agreement it intends to make that could affect the Company's dealings with
FHA and FHA-insured mortgages. Upon dissolution of the Company, any FHA-insured
mortgages owned or serviced by the Company may only be transferred to another
FHA-approved mortgage lender.

Section 6.7 Office Space. The Members shall lease to the Company in each of
their offices as determined by the Operating Committee, space from which the
Company will conduct the business of the Company. Such space shall be separately
identified and segregated in a manner required by all applicable laws and
regulations. Rental rates charged to the Company by a Member shall be set at
rates
                                                                         9/15/03


                                       9


that reflect actual market rates for comparable space in the area in which each
office used by the Company is located. The foregoing lease arrangements shall be
set forth in separate written lease agreements to be agreed upon and executed
between the lessor Member and the Company. Notwithstanding the terms of any
separate lease agreement, any agreement leasing space for the Company from a
Member or any of its Affiliates shall terminate automatically upon any
termination of (the Company subject to an additional period as necessary to wind
down the business of the Company.

Section 6.8 Service Agreement. Wells Fargo, or its Affiliate, shall provide to
the Company, certain services required by the Company in conducting a
residential mortgage lending business, as set forth in the attached Service
Agreement to be executed between Wells Fargo and the Company. The Company shall
provide residential mortgage loan financing to its customers. Wells Fargo, or
one of its Affiliates, shall purchase mortgage loans if offered by the Company
in accordance with the loan purchase agreement terms to be executed by Wells
Fargo or one of its Affiliates, and the Company. The Company shall sell at least
ten percent (10%) of its annual loan production to investors other than Wells
Fargo.

Section 6.9 Credit Agreement. The Company shall fund its loans through a
warehouse line of credit provided by Wells Fargo as set forth in the attached
Credit Agreement or such other source as determined by the Operating Committee.

                                   ARTICLE VII
              Other Rights, Liabilities and Obligations of Members

Section 7.1 Liability of Members. No Member shall be personally liable for the
expenses, liabilities, debts, or obligations of the Company except as
specifically set forth in this Agreement or as provided in the Act.

Section 7.2 Other Provisions Applicable to Members. Except as otherwise
specifically provided in this Agreement, no Member shall have the right to
withdraw or retire from, or reduce its contribution to the capital of, the
Company. No Member shall have the right to demand or receive property other than
cash in return for its Capital Contribution. No Member shall have priority over
any other Member either as to the return of its Capital Contribution or as to
profits or distributions except as specifically set forth in this Agreement.

                                   ARTICLE VIII
                         Accounting and Fiscal Matters

Section 8.1 Maintenance of and Access to Records. Wells Fargo or its Affiliate
on behalf of the Company shall keep complete and accurate books of account and
records relative to the Company's business based on information submitted to it
by the Company. The accrual method of accounting shall be used by the Company
for financial and income tax purposes. The Company's books and records shall at
all times be maintained at the principal business office of Wells Fargo, or the
Accountants, or such other place agreed upon by the Members, and shall be
available for inspection by each of the Members or their duly authorized
representatives during reasonable business hours. The fiscal year of the Company
shall end on December 31 of each year or such other date as determined by the
Operating Committee and allowed by the Code. Welts Fargo shall cause to be
prepared financial statements in accordance with the attached Service Agreement.

Section 8.2 Bank Accounts. Wells Fargo shall deposit all of the funds of the
Company into one or more bank accounts for the Company. Unless otherwise
required by regulatory authority, each such account shall be established with an
Affiliate of Wells Fargo that holds deposits insured by the Federal Deposit
insurance Corporation. Wells Fargo shall separately account for all funds of the
Company. The Company may withdraw its funds only to pay the Company's debts, pay
expenses or to be distributed to the Members or as directed by the Operating
Committee pursuant to this Agreement.

Section 8.3 Budget. The Company shall prepare a preliminary annual Budget for
the first partial fiscal year of the Company. At least thirty (30) days prior to
the end of each fiscal year of the Company, the

                                                                        09/15/03

                                       10


Managing Officer will develop and deliver to the Operating Committee for its
review and approval a Budget for the Company for the next fiscal year. As set
forth in Section 6.4(d), approval of the Budget shall be a Major Decision.

Section 8.4 Company Tax Returns. Wells Fargo, its Affiliate, or such other
person agreed upon by the Members, shall, for each fiscal year, cause to be
prepared and filed on behalf of the Company such federal, state and city tax
returns as may be required by law, and in connection therewith, shall make any
elections deemed advisable; provided, however, the Company shall be given prior
written notice thereof. Copies of such tax returns shall be delivered to each
Member within 10 days after each such filing. The Company's federal and state
income tax returns shall be approved by the Operating Committee in advance of
filing.

Section 8.5 Tax Audits. Wells Fargo Member is hereby designated to manage
administrative tax proceedings conducted by the Internal Revenue Service or
state tax authorities with respect to the Company. The taking of any action or
the failure to take any action in connection with any such proceeding, except to
the extent required by law, is a matter for Wells Fargo Member, subject to the
direction of the Operating Committee. Wells Fargo Member shall give prompt
written notice to the Members of any such administrative proceeding. Any Member
has the right to participate in such administrative proceedings relating to the
determination of tax items at the Company level. Expenses of such administrative
proceedings undertaken by Wells Fargo Member will be paid for out of the assets
of the Company. If any Member elects to participate in such proceedings, the
Member will be responsible for its expenses incurred in connection with such
participation. Further, the cost of any adjustments to a Member and the cost of
any resulting audits or adjustments of a Member's tax return, will be borne
solely by the affected Member.

Section 8.6 Internal Audit. The ongoing activities of the Company shall be
subject to regulatory audit by Wells Fargo Audit Services, Inc. at no direct
cost to the Company. Wells Fargo Audit Services, Inc. shall have no liability
with respect to the Company. A copy of any regulatory audit report prepared by
Wells Fargo Audit Services, Inc. related to the Company shall be provided to the
Operating Committee.

Section 8.7 The Accountants. Any services provided by the Accountants under this
Agreement shall be an expense of the Company. The Accountants shall prepare
annual audited financial statements as set forth in the attached Service
Agreement.

Section 8.8 Advances. Wells Fargo shall advance funds up to $25,000 to the
Company as necessary when the Company's Net Cash Available falls below $0. Any
such advances shall accrue interest at the prime rate in the Wall Street
Journal on the date of the advance until repaid. Accrued interest and the
principal of any such advances shall be repaid out of the profits generated by
the Company or pursuant to a capital call to the Members. Wells Fargo shall
notify the Operating Committee when additional capital is required to meet
regulatory minimum capital requirements or to repay advances and each Member
shall contribute its proportionate share of the amount necessary to satisfy the
requirement.

                                   ARTICLE IX
               Limitations on Dispositions of Members' Interests

Section 9.1 Basic Restrictions. Except as otherwise provided in this Article IX,
no Member may sell, assign, give, hypothecate, pledge, transfer, bequeath, or
otherwise dispose of any or all of its interest, in whole or in part,
voluntarily, involuntarily, by operation of law, or otherwise, to any other
person or entity.

Section 9.2 Representations and Warranties. Each Member hereby represents and
warrants to the Company and to the other Members that its acquisition of its
Interest is made as principal for its account for investment purposes only and
not with a view to the resale or distribution of such Interest. Each Member
agrees that it will not sell, assign, give, hypothecate, pledge, transfer,
bequeath, or otherwise dispose of any or all of its Interest to any person or
entity who or which does not similarly represent and warrant and agree as
provided in this Section 9.2.

                                                                        09/15/03


                                       11


Section 9.3 Disposition of Interests. The sale, assignment, gift, hypothecation,
pledge, transfer, or other disposition ("Transfer") of Interests by or in
respect of a Member shall be subject to the following conditions and
restrictions in addition to any others which are provided for in this Agreement:

         (a) No Member may Transfer any or all of its Interest (other than to an
Affiliate of such Member) without the consent of each other Member (such consent
to be granted or withheld in each Member's sole discretion).

         (b) No Member may Transfer any or all of its Interest if such Transfer
would cause the termination of the Company for Federal income tax purposes. Any
purported Transfer which would cause the termination of the Company for Federal
income tax purposes shall be void ab initio. Counsel for the Company shall give
to the Company its opinion, at the expense of the Member seeking to effect such
Transfer, as to whether such Transfer would cause the termination of the Company
for Federal income tax purposes.

         (c) No Transfer of, or offer to Transfer, any Interest may be made
unless the Company shall have received, at the expense of the Member seeking to
effect such Transfer an opinion of counsel satisfactory to the Members that such
proposed Transfer (i) may be effected without registration of the Interest under
the Securities Act of 1933, as amended, and (ii) would not be in violation of
any applicable state securities or "Blue Sky" law (including investment
suitability standards).

Section 9.4 Admission of Transferee as Additional or Substitute Member. Any
person to whom any Interest or portion thereof is Transferred ("Transferee")
shall be entitled to be admitted as a Member hereunder and to have all of the
rights herein conferred upon a Member only if

         (a) such transferee's admission as a Member will not violate, nor cause
the Company to violate, any applicable laws, rules, or regulations, including
federal and state securities laws, and either such transferee shall have
delivered an opinion of counsel satisfactory to the Members, or counsel for the
Company shall have delivered an opinion, to such effect;

         (b) the consent of all of the Members shall have been given, which
consent may be evidenced by the execution by all of the Members of a Certificate
evidencing the admission of such transferee as a Member;

         (c) the transferee shall have accepted and agreed to be bound by the
terms and provisions of this Agreement by executing a counterpart thereof and
such other documents or instruments as the Members may require in order to
effect the admission of such transferee as a Member;

         (d) such transferee qualifies and becomes a Member within the meaning
of the Act by the procedures set forth in the Act;

         (e) such transferee shall have delivered to the Members a letter
containing a representation and an agreement in the form set forth in Section
9.2 of this Agreement;

         (f) if the transferee is not an individual, the transferee shall have
provided the Members with evidence satisfactory to counsel for the Company of
its authority to become a Member under the terms and provisions of this
Agreement;

         (g) such transferee pays to the Company a sum which is sufficient to
cover all expenses (including legal fees) connected with the admission of the
transferee as a Member pursuant to this Agreement and the Act, including without
limitation the cost of any opinion of counsel referred to above.

Section 9.5 Execution of Documents, Etc. Each Member hereby consents to the
execution and recordation on its behalf by the Company of any amendment
hereto required for the purpose of admitting

                                                                        09/15/03


                                       12


as a Member the transferee of any or all of the Interest of a Member in the
Company in this Article IX and to the execution and recordation on its behaif of
any other instruments required in connection therewith, and the Company is
hereby granted the right to admit any such transferee upon ail of the terms set
forth above. In addition, each Member agrees to execute at the request of the
Company any and all documents required to be executed by such Member to effect
the admission as a Member of the transferee of any or all of the interest of a
Member in the Company pursuant to this Article IX.

Section 9.6 Filings By Company. The Company shall cooperate with any transferee
seeking to become a Member by preparing the documentation required by this
Article IX and making all official filings and publications.

Section 9.7 Pledges. No Member shall mortgage, pledge, or otherwise encumber all
or any part of such Member's Interest in the Company at any time.

Section 9.8 No Withdrawal Rights Prior to Dissolution. Prior to the dissolution
of the Company, no Member may withdraw from the Company or receive any return of
capital or other distribution of Company assets in respect of any withdrawal or
attempted withdrawal.

                                    ARTICLE X
                             Amendment of Agreement

Section 10.1 Amendment. Any amendment or supplement to this Agreement shall only
be effective if in writing and if the same shall be consented to by all of the
Members.

Section 10.2 Procedure for Amendment. Any Member may propose an amendment or
supplement to this Agreement, and any such amendment or supplement may be
proposed by mailing to all of the Members a written request for consent to such
amendment or supplement, accompanied by the text of the proposed amendment or
supplement, and a written statement of the reasons for such proposal.

                                   ARTICLE XI
                                   Dissolution

Section 11.1 No Dissolution. The Company shall not be dissolved by the admission
of additional or substitute Members in accordance with the terms of this
Agreement or by the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member or the occurrence of any other event under the Act that
terminates the continued membership of a Member in the Company except as
expressly provided in the Agreement.

Section 11.2 Term. The Company shall be in effect for a term beginning on the
date the Certificate of Formation of the Company is filed with the Delaware
Secretary of State in accordance with the provisions of the Act and shall
continue for a minimum of ten (10) years unless sooner dissolved and liquidated
in accordance with the provisions of this Article. At the end of the ten (10)
year minimum term, the Company shall continue in business until dissolved and
liquidated in accordance with the provisions of this Article.

Section 11.3 Voluntary Withdrawal. Any Member shall have the right to withdraw
from the Company at any time by giving the other Members not less than ninety
(90) days prior written notice. In addition, if Marketing Member is no longer an
Affiliate of Ashton Woods Homes, Marketing Member must give notice to Wells
Fargo Member of the change in affiliation on the date of the change. During the
continuance of the notice period, the Members shall continue to perform their
respective obligations in accordance with the terms of this Agreement. The
Member giving the notice shall be referred to hereinafter as the "Electing
Member" for purposes of Section 11.8. The day following expiration of the 90 day
notice period shall be referred to as the "Section 11.3 Termination Date." The
Company shall be liquidated pursuant to the provisions of Section 11.7.

                                                                        09/15/03

                                       13


Section 11.4 Bankruptcy. If:

         (a) any Member shall file a voluntary petition in bankruptcy, or shall
be adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief for itself under the present or any future Federal
Bankruptcy Act, or any other present or future applicable Federal, state or
other statute or law relative to bankruptcy, insolvency, or other relief
for debtors, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver, conservator or liquidator of said Member or of all or any
substantial part of its properties or its interest in the Company (the term
"acquiesce" includes, but is not limited to, the failure to file a petition or
motion to vacate or discharge any order, judgment or decree providing for such
appointment within ten (10) days after the appointment); or

         (b) a court of competent jurisdiction shall enter an order, judgment or
decree approving a petition filed against any Member seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the present or any future Federal Bankruptcy Act, or any other
present or future applicable Federal, state or other statute or law relative to
bankruptcy, insolvency, or other relief for debtors, and said Member shall
acquiesce in the entry of such order judgment or decree (the term "acquiesce"
includes, but is not limited to, the failure to file a petition or motion to
vacate or discharge any order, judgment or decree within ten (10) days after the
entry of the order, judgment or decree), or such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of ninety (90) days (whether or
not consecutive from the date of entry thereof), or any trustee, receiver,
conservator or liquidator of said Member or of all or any substantial part of
its property or its interest in the Company shall be appointed without the
consent or acquiescence of said Member and such appointment shall remain
unvacated and unstayed for an aggregate of sixty (60) days (whether or not
consecutive); or

         (c) any Member shall give notice to any governmental body of insolvency
or pending insolvency, or suspension or pending suspension of operations.

then, and in any such event such Member shall be deemed, as of the date of
occurrence of the respective event, to be the "Electing Member" for purposes of
Section 11.8. The filing date of the bankruptcy petition shall be the "Section
11.4 Termination Date" and the Company shall be liquidated in accordance with
Section 11.7.

Section 11.5 Automatic Termination. In the event:

         (a) any Member, or its Affiliate, is prohibited by law, rule or
regulation or by regulatory directive or order by any of their governing
regulatory authorities, in any case, from participating in the Company; or

         (b) all of the Members mutually agree in writing that the business of
the Company shall be terminated;

then the Company shall terminate automatically and no Member shall be considered
an "Electing Member" for purposes of Section 11.8. The Members shall provide in
writing for a termination date ("Section 11.5 Termination Date"). The Company
shall be liquidated pursuant to Section 11.7.

Section 11.6 Default.

         (a) if any Member (i) fails to perform in any material respect any of
its obligations or covenants or (ii) breaches in any material respect any of its
representations, warranties or promises, in either case, set forth in this
Agreement (in either case, a "Default"), any other Member ("Non-defaulting
Member") shall have the right within 30 days of the date (i) of the Default or
(ii) when the Non-defaulting Member learns of the Default to give the defaulting
party ("Defaulting Member") a written notice of the Default ("Notice of
Default"). The Notice of Default shall, as applicable, set forth in detail the
obligation(s) or covenant(s) that the Defaulting Member has not performed or the
representation(s), warranty(ies) or promise(s) that the Defaulting Member has
breached.

                                                                        09/15/03


                                       14


         (b) If, within a 15-day period following receipt of the Notice of
Default, the Defaulting Member cures such Default, it shall be deemed that the
Notice of Default was not given and the Defaulting Member shall lose no rights
hereunder. If, however, within such 15-day period, the Defaulting Member does
not cure such Default, the Non-Defaulting Member hereunder shall have the right
within 30 days of the expiration of the 15-day cure period to terminate this
Company by giving the Defaulting Member written notice thereof ("Termination
Notice"). The Company shall terminate on the date of the Termination Notice
("Section 11.6(b) Termination Date") The remedy of the Non-Defaulting Member
shall be limited to the termination fee provisions provided for under Section
11.8.

         (c) If a Defaulting Member disputes the basis set forth in the Notice
of Default, the Defaulting Member must file for arbitration pursuant to Section
13.9 below within thirty (30) days of the Section 11.6 (b) Termination Date. If
it is ultimately determined by the arbitrator that the Defaulting Member was not
in default as specified in the Notice of Default, then the Non-Defaulting Member
shall be deemed an "Electing Member" under Section 11.8. The Company shall be
deemed to have terminated on the date of the Termination Notice ("Section 11.6
(c) Termination Date"). The Company shall be liquidated pursuant to Section
11.7. The remedy of the Non-Electing Member shall be limited to the termination
fee provisions provided for under Section 11.8.

Section 11.7 Liquidation.

         (a) On the Termination Date:

                  (1) the Company shall not take any additional loan
                  applications;

                  (2) the Company shall terminate its real property and
                  equipment leases and pay for any early termination penalties
                  unless a Member agrees to assume full responsibility for the
                  leased space and equipment;

                  (3) the Company shall transfer its loan pipeline and any other
                  assets to the Non-electing Member or as the Non-electing
                  Member directs, provided that any FHA applications may only be
                  transferred to an FHA approved lender (or in the event of a
                  Section 11.5 Termination Date, as agreed by the parties); the
                  Company shall have 120 days to close out its remaining loan
                  pipeline; any loan applications scheduled to close more than
                  120 days after the termination date shall be brokered out to
                  another lender as agreed between the Members for a broker fee
                  as agreed between the Members and the lender.

                  (4) any restrictions on the activities of the Members
                  contained in this Agreement shall cease unless the restriction
                  specifically provides that it shall continue after
                  termination; and

                  (5) the Accountants or other third party mutually agreed to
                  between the Members shall be retained to handle the
                  liquidation consistent with the provisions of this Agreement.

         (b) Subject to Section 11.8, the assets of the Company shall be paid or
distributed in the following order of priority, unless otherwise required by
applicable law:

                  (1) To pay (or make provision for the payment of) all
                  creditors of the Company, including the Members, in the order
                  of priority provided by law; and

                  (2) Except as provided in Section 11.8, to distribute to the
                  Members in accordance with (or in direct proportion to if less
                  than) their respective Units, as adjusted for item (1) above
                  and all Company operations up to and including such
                  liquidation.

Thirty days after the Termination Date shall be the "Liquidation Date." All
distributions shall be made within 90 days of the Liquidation Date.

                                                                        09/15/03


                                       15


Section 11.8 Electing Members Termination Fee.

         (a)      It is understood that in the course of operation of the
                  Company, the Members will contribute to the Company
                  significant funds, resources and knowledge, including
                  information, techniques, processes and business clientele, the
                  value of which cannot be calculated. As a material inducement
                  to enter into this Agreement and to develop and disclose such
                  information, the Members agree to the provisions set forth in
                  this Section 11.8. In the event of a Section 11.3 Termination
                  Date, a Section 11.4 Termination Date, or a Section 11.6(b) or
                  (c) Termination Date, the Non-Electing Member shall not have
                  to make any payment to the Company as compensation for the
                  transfer of the Company's loan pipeline and other assets. In
                  addition, in the event of any Termination Date specified in
                  this Section any net remaining capital after liquidation of
                  the Company shall be paid out to the Non-Electing Member. In
                  the event of a Section 11.6(c) Termination Date, the Electing
                  Member shall account for and pay to the Non-Electing Member
                  the net profits generated from the Company's pipeline
                  transferred to the Non-Electing Member at liquidation along
                  with the net remaining capital. The Electing Member shall pay
                  the net profits and the net remaining capital to the
                  Non-Electing Member within thirty (30) days of the
                  arbitrator's decision. Any amount remaining unpaid after
                  expiration of the 30 day period shall bear interest at the
                  rate of 1% over the prime rate published in the Wall Street
                  Journal on the last business day of the 30 day period.

         (b)      From the date of the Withdrawal Notice, the bankruptcy filing
                  or the Notice of Default until the loans in the Company's
                  pipeline have been closed, an Electing Member shall not
                  solicit or incent the customers in the loan pipeline to
                  transfer their applications to any other lender. During this
                  same period of time, an Electing Member shall not provide any
                  third party with the names of customers in the pipeline, their
                  telephone numbers, copies of their applications or any other
                  information that would enable the third party to solicit the
                  customers to transfer their loan applications. In the event of
                  a breach of this provision, the Electing Member shall be
                  liable for the profit that would have been generated from any
                  customers who transfer their applications to another lender
                  after the breach of this prohibition. In addition, in the
                  event that damages for breach of this prohibition are awarded,
                  the Electing Member shall also be liable for the Non-Electing
                  Member's attorney fees.

                                   ARTICLE XII
                         Representations and Warranties

Section 12.1 Member Representations and Warranties. Marketing Member represents
and warrants as of the Closing Date that:

         (a) Marketing Member is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Nevada and
has all requisite power and authority and licenses to own or lease its property
and to carry on its business as it is now being conducted. The execution,
delivery and performance of this Agreement by Marketing Member have been duly
authorized by all proper action on the part of Marketing Member, and are within
its powers and will not conflict with or be in violation of Marketing Member's
organizational documents. This Agreement constitutes the legal, valid and
binding obligation of Marketing Member, enforceable against Marketing Member in
accordance with its terms.

         (b) The performance of this Agreement by Marketing Member will not
violate or result in a breach of, constitute a default under, give rise to
any right of acceleration or termination under any law or any contract,
agreement, note, bond, license, indenture, mortgage, lease agreement or other
instrument or obligation to which Marketing Member is a party or by which it is
bound or affected or violate any rule or regulation of any administrative
agency, or order, writ, injunction, judgment or decree of any court,
administrative agency or governmental body applicable to it.

                                                                        09/15/03


                                       16


         (c) Marketing Member has obtained and kept in force all material
governmental licenses and permits necessary to conduct its business as it is now
being conducted.

         (d) Except as has been disclosed in writing to Wells Fargo Member,
Marketing Member is not a party to any pending or, to the best knowledge of
Marketing Member, threatened, claim, action suit, investigation or proceeding,
nor is subject to any order, judgment or decree which may have a materially
adverse effect on the Marketing Member's assets or business as currently
conducted.

         (e) There are no claims for brokerage or other commissions or finder's
or other similar fees in connection with the transactions covered by this
Agreement insofar as such claims shall be based on arrangements or agreements
made by or on behalf of Marketing Member, and Marketing Member hereby agrees to
indemnify and hold harmless Wells Fargo Member from and against all liabilities,
costs, damages and expenses from any such claim.

Section 12.2 Wells Fargo Member Representations and Warranties. Wells Fargo
Member represents and warrants as of the Closing Date that:

         (a) Wells Fargo Member is a limited liability company, duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority and licenses to own or lease
its property and to carry on its business as it is now being conducted. The
execution, delivery and performance of this Agreement by Wells Fargo Member have
been duly authorized by all proper action on the part of Wells Fargo Member, and
are within its powers and will not conflict with, result in the breach or
violation of, constitute a default under, give rise to any right of acceleration
or termination under Wells Fargo Member's organizational documents or any
indenture, mortgage, lease agreement, contract, order, injunction, judgment,
decree or other instrument, rule or regulation to which Wells Fargo Member is a
party or by which Wells Fargo Member is bound. This Agreement constitutes the
legal, valid and binding obligation of Wells Fargo Member, enforceable against
Wells Fargo Member in accordance with its terms.

         (b) The performance of this Agreement by Wells Fargo Member will not
violate or result in a breach of any law or any contract, agreement, note, bond,
license or other instrument or obligation to which Wells Fargo Member is a party
or by which it is bound or affected or violate any rule or regulation of any
administrative agency, or order, writ, injunction or decree of any court,
administrative agency or governmental body applicable to it.

         (c) Wells Fargo Member has obtained and kept in force all material
governmental licenses and permits necessary to conduct its business as it is now
being conducted.

         (d) Except as has been disclosed in writing to Marketing Member, Wells
Fargo Member is not a party to any pending or, to the best knowledge of Wells
Fargo Member, threatened, claim, action suit, investigation or proceeding, nor
is subject to any order, judgment or decree which may have a materially adverse
effect on the Wells Fargo Member's assets or business as currently conducted.

         (e) There are no claims for brokerage or other commissions or finder's
or other similar fees in connection with the transactions covered by this
Agreement insofar as such claims shall be based on arrangements or agreements
made by or on behalf of Wells Fargo Member, and Wells Fargo Member hereby agrees
to indemnify and hold harmless Marketing Member from and against all
liabilities, costs, damages and expenses from any such claim.


                                  ARTICLE XIII
                            Miscellaneous Provisions

Section 13.1 Notices. Notices, requests, reports, payments, calls or other
communications required to be given or made to any Member hereunder shall be in
writing and shall be deemed to be given or made

                                                                        09/15/03


                                       17


when properly addressed and delivered. Delivery may be by registered or
certified mail, postage prepaid, or by overnight courier to such Member at such
Member's last known address. Addresses shown on the Schedule of Capital
Contributions for each Member shall be considered the last known address of such
Member unless and until the Company is otherwise notified by such Member in the
manner set forth in this Section 13.1.

Section 13.2 Nature of Interest of Members. The Interest of each Member in the
Company is personal property.

Section 13.3 Applicable Law. Notwithstanding the place where this Agreement may
be executed by any of the parties hereto, this Agreement, the rights and
obligations of the parties hereto, and any claims and disputes relating thereto,
shall be subject to and governed by the Act and the other laws of the State of
Delaware as applied to agreements among Delaware residents to be entered into
and performed entirely within the State of Delaware, and such laws shall govern
the limited liability company aspects of this Agreement.

Section 13.4 Execution in Counterparts. This Agreement may be executed in one or
more counterparts with the effect as if the parties executing the several
counterparts had all executed one counterpart, but in such event each such
counterpart shall constitute an original and all of such counterparts shall
constitute one and the same agreement.

Section 13.5 Successors in Interest. Each and all of the covenants, agreements,
terms, and provisions of this Agreement shall be binding upon and inure to the
benefit of each of the Members and, to the extent permitted by this Agreement,
their respective heirs, executors, administrators, personal representatives,
successors and assigns.

Section 13.6 Severability. Any provision of this Agreement which is invalid,
illegal, or unenforceable in any respect in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality, or
unenforceability without in any way affecting the validity, legality, or
enforceabllity of the remaining provisions hereof, and any such invalidity,
illegality, or unenforceability in any jurisdiction shall not invalidate or in
any way affect the validity, legality, or enforceability of such provisions in
any other jurisdiction.

Section 13.7 Headings. The headings in this Agreement are inserted for
convenience and identification only and are in no way intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision hereof.

Section 13.8 Waiver of Right to Partition. Each of the Members irrevocably
waives during the term of the Company any right that such Member may have to
maintain any action for partition with respect to the property and assets of the
Company.

Section 13.9 Arbitration.

         (a) The Members agree to take all reasonable steps to resolve disputes
between them without resorting to arbitration. The Members agree to submit to
binding arbitration any and all claims, disputes and controversies between or
among them which cannot be resolved without arbitration, whether in tort,
contract or otherwise (and their respective employees, officers, directors,
attorneys, and other agents) arising out of or relating in any way to this
Agreement, any related ancillary documents and their negotiation, execution,
administration, modification, extension, substitution, formation, inducement,
enforcement, default or termination. However, "Core proceedings" under the
United States Bankruptcy Code shall be exempted from arbitration. Should the
need arise for such arbitration, the Members agree that the determination of the
arbitrator shall be final and shall not be capable of being appealed to any
other court or form of resolution. Notwithstanding this prohibition, the Members
do agree that the decision of any arbitrator shall be capable of being enforced
through an action filed in the appropriate court having jurisdiction.

                                                                        09/15/03

                                       18


         (b) Arbitration under this Agreement shall be governed by the Federal
Arbitration Act (Title 9 of the U.S. Code), and shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). When the need for selection of an arbitrator shall arise, the Members
shall request AAA to supply them with a list of no less than seven (7)
arbitrators having no less than five (5) years experience in arbitrating complex
business arrangements. Upon receipt of that list of potential arbitrators, each
Member shall communicate within 7 days to AAA four (4) arbitrators from the list
they would agree to use or their right to participate in the selection of the
arbitrator shall be forfeited. As soon as AAA receives the selections from both
Members, AAA shall review the selected arbitrators and appoint one of those
arbitrators whose name appears on both Members' lists of acceptable arbitrators,
AAA shall have the discretion to select the arbitrator from those arbitrators
approved by both Members based upon availability and experience and AAA's
selection shall be final. The arbitrator shall give effect to statutes or
limitation in determining any claim. Any controversy concerning whether an issue
is arbitrable shall be determined by the arbitrator. Each Member shall each pay
its own costs and expenses of the arbitration proceeding and the cost of the
arbitrator shall be divided equally between the Members.

Section 13.10 Confidentiality.

         (a) The parties agree that the terms of this Agreement shall be
maintained in confidence, and shall not be disclosed to any third party, except
(i) as is required by law, (ii) pursuant to court order during the course of
litigation after notice to the other Member, (iii) for internal communications
purposes, (iv) as necessary for tax, accounting, and other regulatory purposes
and, (v) as necessary or desirable to facilitate procurement of insurance
protection. This clause shall not restrict the release of financial statements
of the Company by either party to any third party for regulatory requirements.

         (b) Marketing Member will hold in confidence all documents and
information concerning Wells Fargo Member and its Affiliates furnished to it and
its representatives in connection with this Agreement. Marketing Member will not
release or disclose such information to any other person, except as required by
law or in connection with any proceedings to enforce or construe this Agreement
and except its advisers in connection with this Agreement, with the same
undertaking from such advisers. If the Company shall not commence operation,
such confidence shall be maintained and such information shall not be used in
competition with Wells Fargo Member, unless Marketing Member can show that that
such information was previously known to Marketing Member, in the public domain,
or later acquired from other legitimate sources. Upon request, all such
documents and any copies thereof and extracts therefrom shall immediately
thereafter be returned to Wells Fargo Member. Upon termination of this
Agreement, all confidential documents and information shall be returned upon
completion of the liquidation of the Company.

         (c) Wells Fargo Member will hold in confidence all documents and
information concerning Marketing Member and its Affiliates furnished to it and
its representatives in connection with this Agreement. Wells Fargo Member will
not release or disclose such information to any other person, except as required
by law or in connection with any proceedings to enforce or construe this
Agreement and except its advisers in connection with this Agreement, with the
same undertaking from such advisers. If the Company shall not commence
operation, such confidence shall be maintained and such information shall not be
used in competition with Marketing Member, unless Wells Fargo Member can show
that that such information was previously known to Wells Fargo Member, in the
public domain, or later acquired from other legitimate sources. Upon request,
all such documents and any copies thereof and extracts therefrom shall
immediately thereafter be returned to Marketing Member. Upon termination of this
Agreement, all confidential documents and information shall be returned upon
completion of the liquidation of the Company.

Section 13.11 Publicity. The Members shall consult with each other as to the
form and substance of any proposed press release or other proposed public
disclosure of matters related to this Agreement or any of the transactions
contemplated hereby.


                                       19                                9/15/03


Section 13.12 Survival. The provisions of Sections 13.9 and 13.10 shall continue
to bind the Members should either withdraw from or otherwise leave the Company
and shall survive any termination of this Agreement.

IN WITNESS WHEREOF, the Members hereto have executed and delivered this
Agreement of Limited Liability Company the day and year first above written.


WELLS FARGO VENTURES, LLC                     ASHTON WOODS USA, LLC


By: /s/ JOE JACKSON                           By: /s/ ROBERT SALOMON
    ------------------------                      --------------------------
Printed Name: Joe Jackson                     Printed Name:   Robert Salomon

Title: Senior Vice President                  Title: Chief Financial Officer


                                       20                                9/15/03

EX-10.9

                                                                    EXHIBIT 10.9

                        DOMINION TITLE OF DALLAS, L.L.C.

                               MEMBERS' AGREEMENT

      THIS AGREEMENT, dated JANUARY 21, 2000, is among STEWART TITLE DALLAS,
INC., a Texas corporation ("STEWART") and ASHTON DALLAS RESIDENTIAL, L.L.C., a
Texas limited liability company ("ASHTON") (all hereinafter sometimes
collectively called the "Members" and singly called "Member"), and DOMINION
TITLE OF DALLAS, L.L.C., a Texas limited liability company (the "Company").

      WHEREAS, the Members are the owners of all of the outstanding ownership
interests ("Membership Interest") of the Company, as follows :



  Member                                                Membership Interest
- ----------                                              -------------------
                                                     
STEWART                                                         51%
ASHTON                                                          49%


      WHEREAS, the Members desire to enter into certain agreements relating to
the ownership, voting and transferability of the Membership Interest;

      NOW, THEREFORE, in consideration of the mutual promises and other valuable
considerations, the Members and the Company agree as follows:

                                   ARTICLE I.

                         RESTRICTIONS ON TRANSFERABILITY

      1.1 General Restrictions on Transferability of Membership Interest. The
following restrictions shall apply to all Membership Interests of the Company.
These restrictions are in addition to any restrictions in the Regulations
("Regulations") of the Company.

      1.2 Specific Restriction on Transferability. Except as hereinafter
provided in this Agreement and the Regulations, no Member may make, cause or
allow any transfer, sale, passage, assignment, gift, exchange, distribution,
transfer, pledge, mortgage, encumbrance or any other disposition of its
Membership Interest whatsoever, whether voluntarily or involuntarily or directly
or indirectly, except with the written consent of the Company and all other
Members. If such consent is given, it shall also be deemed to constitute a vote
of all of the remaining Members to continue the business of the Company.
Provided, however, that each of Stewart and Ashton shall have the right to
transfer its Membership Interest to its parent company, or to any subsidiary or
affiliated company which is controlled by Stewart and/or its parent company, or
Ashton and/or its parent company, respectively, without



triggering any of the provisions of this Agreement as long as such transferee
corporation executes and agrees to be bound by the provisions of this Member's
Agreement. Notwithstanding the foregoing, in the event:

      (a)   a Member receives a bona fide offer in writing to purchase any
            Membership Interest owned by such Member or any part thereof which
            such Member is willing to accept;

      (b)   a Member entity is dissolved, liquidated or merged where the Member
            entity is not the surviving entity;

      (c)   the controlling shareholder(s) or member(s) of a Member changes;

      (d)   any Membership Interest owned by a Member becomes subject to an
            involuntary disposition, including, without limitation, any
            disposition pursuant to or by reason of or under judicial order,
            legal or equitable process, execution, attachment or enforcement of
            a pledge, trust or other security interest or encumbrance; or

      (e)   a Member (i) files an application for, or consents to, the
            appointment of a trustee of such Member's assets, (ii) files a
            voluntary petition in bankruptcy or files a pleading in any court of
            record admitting in writing such Member's inability to pay debts as
            they come due, (iii) makes a general assignment for the benefit of
            creditors, (iv) files an answer admitting the material allegations
            of, consents to, or defaults in answering a bankruptcy petition
            filed against such Member in any bankruptcy proceeding or (v) has an
            order, judgment or decree by any court of competent jurisdiction
            entered against such Member adjudicating such Member as bankrupt or
            appointing a trustee of such Member's assets and such order,
            judgment or decree is not dismissed within ninety (90) days after
            its issuance;

and all the remaining Members consent to continue the business of the Company,
then, unless the Company and the other Members agree in writing otherwise, all
of the Membership Interest owned by such Member, or that portion of the
Membership Interest so affected, shall be automatically subject to the purchase
options as provided in this Agreement, any written notification requirement is
waived, and there is an automatic requirement to offer to sell such Membership
Interest upon the happening of the above described events. Failure to send any
written notification does not terminate or invalidate the automatic requirement
to offer to sell such Membership Interest as provided in this Agreement.

                                       2


      1.3 Requirements of Offer. If any Member or its legal representative is
required to extend the purchase option as provided in this Agreement, such
Member or its legal representative (hereinafter referred to as the "Offering
Member") shall offer in writing to sell such Membership Interest to the Company
by notice to the Secretary of the Company.

      1.4 Offer to the Company. On or before the expiration of thirty (30) days
from the date of receipt by the Company of the aforesaid notification, the
Secretary of the Company shall certify in writing to the Offering Member the
percentage, if any, of such Offering Member's Membership Interest which has been
elected to be purchased by the Company pursuant to the provisions hereof, and
the Secretary shall deliver to the Offering Member the total purchase price
thereof, at which time the sale of such Membership Interest and all rights
incident to ownership thereof shall be deemed to occur. The Secretary shall
thereupon cause proper notation to be made in the books and records of the
Company.

      1.5 Offer to the Other Members. If the Company elects not to purchase all
or any part of the Membership Interest of the Offering Member in accordance with
the terms of this Agreement, on or before thirty (30) days after receipt of the
written offer, the Secretary of the Company shall, by writing deposited in the
United States mails with postage prepaid, notify each of the other Members
(other than the Offering Member) as of the date of the receipt of notice by the
Secretary that the Offering Member has offered to sell some or all of its
Membership Interest, pursuant to the provisions of this Agreement, stating the
name of such Offering Member and the Membership Interest available for purchase
by the other Members. The other Members shall have thirty (30) days from the
date of mailing of such notification by the Secretary within which to exercise
their right to purchase all or any part of the offered Membership Interest that
they may purchase pursuant to the provisions of this Agreement.

      1.6 Consummation of Sales. At the expiration of thirty (30) days from the
date of sending the aforesaid notification to said Members, the Secretary of the
Company shall then certify in writing to the Offering Member the percentage, if
any, of such Offering Member's Membership Interest which has been elected to be
purchased by the other Members pursuant to the provisions hereof, and the
Secretary shall deliver to the Offering Member the total purchase price thereof,
at which time the sale of said Membership Interest and all rights incident to
ownership thereof shall deem to occur. The Secretary shall thereupon cause
proper notation to be made in the books of the Company to reflect such transfer.

      1.7 Failure to Purchase Entire Membership Interest Offered. If, upon
completion of the procedure described above, all of the Membership Interest has
not been sold, the Offering Member shall

                                       3


have the right for a period of thirty (30) days after the expiration of the time
periods heretofore described to transfer any remaining unsold Membership
Interest that had theretofore been offered pursuant to the provisions hereof.
Notwithstanding the preceding sentence, no sale, transfer, pledge, assignment or
other disposition shall be effective unless and until the transferee executes
and delivers to the Company an agreement in respect of the Membership Interest
to be transferred to such transferee, which agreement shall be substantially in
the form of this Agreement with such modifications as the Company determines to
be appropriate. If the ownership of the offered Membership Interest is not
transferred to a third party before the expiration of the thirty (30) day
period, such Membership Interest shall again be subject to the restrictions of
transferability provided in this Agreement.

                                   ARTICLE II.

                                 PURCHASE PRICE

      2.1 Purchase Price Under Section 1.2(a) - Bona Fide Offers. In connection
with any purchase of any Membership Interest owned by a Member (hereinafter
called the "Selling Member") by the Company or any other Members pursuant to
this Agreement as a result of an offer made to the Company or such other Members
arising out of a bona fide offer in writing received by the Selling Member (as
described in Section 1.2(a) hereof), the price which the Company or such other
Members shall pay for such Membership Interest shall be the same price that the
bona fide offeror for such Membership Interest shall have so offered for such
Membership Interest. The purchase price determined pursuant to the provisions of
this Section 2.1 shall be paid on the same terms as the bona fide offer.

      2.2 Purchase Price - Generally. In connection with any other purchase of a
Membership Interest owned by any Selling Member, by the Company or any other
Member under Sections 1.2(b)-(e), the purchase price per percentage of
Membership Interest for such Membership Interest shall be the Fair Value of such
Membership Interest as defined in Section 2.4 below.

      2.3 Determination Date. As used herein, "Determination Date" means, in
connection with any offer or any event which causes an offer for sale of the
Membership Interest owned by a Selling Member pursuant to this Agreement, the
date upon which the Selling Member or its legal representative delivers to the
Secretary of the Company notice of its offer in writing of such Membership
Interest, or if no such notice is delivered, the date of occurrence of the event
or the determination by the Managers of the Company of the existence of the
condition which subjects the Selling Member's Membership Interest to such
offer, as the case may be.

                                       4


      2.4 Determination and Payment of Purchase Price.

      (a) Except as otherwise provided in Section 2.1 hereof, the purchase price
to be paid for the purchase of a Membership Interest of the Company pursuant to
this Agreement shall be determined from unaudited financial statements of the
Company at the date and for the period indicated in the foregoing provisions
hereof, prepared by the Company's independent public accountants in accordance
with generally accepted accounting principles consistently applied. "Fair Value"
of each percentage of Membership Interest shall be determined by multiplying the
average Net Pre-Tax Earnings per percentage of Membership Interest of the
Company for the completed full five (5) fiscal years immediately preceding the
exercise of the right of first refusal, by four (4). If the purchase price has
to be determined pursuant to this Section 2.4(a) before the expiration of five
(5) full fiscal years of the Company, then the Net Pre-Tax Earnings of the
Company shall be determined by adding the Net Pre-Tax Earnings of the Company
for each year prior to the Determination Date and dividing the total by the
number of actual full fiscal years lapsed; provided, however, that if the
Company shall be in the third or forth quarter of its current fiscal year at the
time the purchase price has to be determined pursuant to this Section 2.4(a),
the Net Pre-Tax Earnings for such most recent fiscal year shall be determined
(and used as the amount for one fiscal year in the above calculation) by
dividing the amount of the Net Pre-Tax Earnings for the current fiscal year (up
to and including the last complete month) by the number of complete months of
such fiscal year and multiplying such amount by twelve.

      (b) "Net Pre-Tax Earnings" shall be calculated in accordance with
generally accepted accounting principles, consistently applied.

      (c) Except as provided in Section 2.1 hereof, such purchase price shall be
payable, at the election of the purchaser of such Membership Interest, in cash
upon consummation of such purchase, or at least ten percent (10%) in cash upon
consummation of such purchase and the balance thereof evidenced by a promissory
note of such purchaser, payable to the seller of such Membership Interest of
such principal amount. Such promissory note shall be payable, at the election of
such purchaser, in up to five (5) equal annual installments of principal which
shall be due and payable on the succeeding anniversary dates of the making
thereof, and shall bear interest at the prime rate of interest published in the
Wall Street Journal, Southwest Edition, in effect on the applicable
Determination Date. Such promissory note, or any portion thereof, may be prepaid
without penalty.

                                       5



                                  ARTICLE III.

                                 MAJOR DECISIONS

      Subject to the additional requirements in Subsection (c) below, the
Company shall not undertake the following actions without an affirmative vote of
seventy percent (70%) or more of the Membership Interest of the Company:

     (a)   Distributions. Except as hereinafter provided in this Paragraph (a),
           make any distribution, either directly or indirectly, and whether in
           cash or property or an obligation of the Company. Notwithstanding the
           foregoing, from time to time (but at least once each calendar month),
           the Managers shall determine in their reasonable judgment to what
           extent the Company's cash on hand exceeds its current and anticipated
           needs, including, without limitation, for operating expenses for
           thirty days, debt service, immediate capital expenditures and
           reasonable contingency reserves. If such an excess exists, the
           Mangers shall cause the Company to distribute to the members in the
           same ratio as profits and losses of the Company, an amount in cash
           equal to that excess. From time to time, the Managers also may cause
           property of the Company other than cash to be distributed to the
           members, which distribution must be made, in the same ratio as
           profits and losses of the Company, and may be made subject to
           existing liabilities and obligations. Immediately prior to such a
           distribution, the capital accounts of the members shall be adjusted
           as provided in Treas. Reg. Section. 1.704-1(b)(2)(iv)(f).

      (b)   Prohibition of Mergers, Sales of Assets, Etc. The Company will not,
            and will not cause or permit any subsidiary to, (i) merge or
            consolidate with another entity, (ii) sell, lease, exchange or
            otherwise dispose of all or substantially all of its assets or (iii)
            enter into or effect a recapitalization or reorganization.

      (c)   Amendment to Corporate Documents. The Company shall not amend its
            Articles of Organization, Regulations or this Member's Agreement.
            Provided, however, that amendments of Sections 5.4 (Additional
            Contributions), 5.8 (Transfer and Assignability of Membership
            Interest), 5.9 (Resignation of Member) and Article XI (Amendments)
            of the Regulations and of Sections 1.1 (General Restrictions on
            Transferability of Membership Interest) and 1.2 (Specific
            Restriction) of this Members, Agreement require the consent of all
            Members.

                                       6


      (d)   Incurring Debt. The Company shall not borrow, mortgage any Company
            assets, enter into any financing and/or credit facility agreement,
            excluding trade accounts payable incurred in the ordinary course of
            business, for an amount equal or superior to FIFTY THOUSAND AND
            NO/100 DOLLARS ($50,000.00) in the aggregate in any one (1) year.

      (e)   Member Loans. The Company shall not borrow any funds from a Member
            except pursuant to Section 5.5(a) of the Regulations.

      (f)   Underwriter. The Company shall not use any title underwriter other
            than Stewart Title Guaranty Company.

      (g)   Title Examination Fee Agreements. The Company shall not enter into,
            modify or terminate any title examination fee agreements with
            Stewart or with any other title agents.

                                   ARTICLE IV.

                            COVENANTS OF THE MEMBERS

      The Members agree that for as long hereafter as any Member shall own a
Membership Interest:

      (a)   Access to Information. The Company shall give to each Member, such
            Member's counsel, accountants and other representatives, access at
            reasonable times during normal business hours to all of the
            properties, books and records of the Company, and shall furnish each
            such Member with such information concerning the Company as such
            Member may reasonably request.

      (b)   Financial Statements and Budgets. The Company shall complete the
            financial statements for each month within five (5) business days
            after the end of such month and shall furnish them within fifteen
            (15) business days after the end of each month to each member. The
            financial statements shall be reviewed by the members on a quarterly
            basis. The Company shall also prepare, and furnish to the members,
            an annual budget, which shall be updated quarterly with regard to
            the Company's progress against the budget.

      (c)   Business With Members. The Company shall be permitted to transact
            business with any Member, provided the transaction is competitive
            within the industry, and the Member receives no preferential
            benefit.

                                       7


                                   ARTICLE V.

                                VOTING AGREEMENT

      The Members agree to vote their membership interest in favor of:

      (a) the election of a number of persons designated by Ashton equal to at
least 40% of the total number of managers of the Company; and

      (b) The election of a number of persons designated by Stewart equal to the
remaining number of managers of the Company.

                                   ARTICLE VI.

                        DISSOLUTION AND NON-COMPETITION

      6.1 Dissolution. In addition to the events of dissolution set forth in
Section 10.1 of the Regulations of the Company, any Member may cause the
dissolution of the Company for any reason, after the Company has been in
existence for at least nine (9) months, by giving ninety (90) days' written
notice to the other Members at the addresses set forth below.

      6.2 Non-Competition.

      (a) Margin Below 20%. If Ashton elects to dissolve the Company as set
forth in Section 6.1 above and the Margin (as defined below) has been below
twenty percent (20%) for any four (4) of the immediately preceding eight (8)
consecutive months before the notice of dissolution is given, Ashton agrees not
to invest, directly or indirectly, in any title insurance company or title agent
in the Dallas - Fort Worth Metroplex for three (3) months after the dissolution
of the Company.

      (b) Generally. If Ashton elects to dissolve the Company pursuant to
Section 6.1 and subsection 6.2(a) does not apply, Ashton agrees not to invest,
directly or indirectly, in any title insurance company or title agent in the
Dallas - Fort Worth Metroplex for three (3) months after the dissolution of the
Company.

      (c) Dissolution by Stewart. The foregoing non-compete provisions shall not
apply in the event Stewart elects to cause the dissolution pursuant to Section
6.1 above.

      (d) Definition of Margin. The term "Margin" shall mean pre-tax income
divided by the net revenues of the Company.

                                       8


      6.3 Rights to Name. The parties hereby acknowledge that

      (a)   in the event the Company is dissolved, Stewart shall not have the
            right to use the word "Dominion" in the corporate name of any
            title insurance company or title agent, which is doing business in
            the Dallas - Fort Worth Metroplex and is controlled by Stewart, for
            a period of two (2) years from the date the Articles of Dissolution
            of the Company are filed in the Secretary of State's office; and

      (b)   as long as Ashton (or an affiliate or parent company) is a member of
            the Company and for a period of two (2) years after a dissolution of
            the Company, neither Ashton nor any entity controlling Ashton, or
            controlled by, or affiliated with, Ashton shall have the right to
            organize, form, participate or otherwise become, directly or
            indirectly, involved with any title insurance company or title agent
            with the name "Dominion Title, L.L.C." or a deceptively similar name
            (as defined by the Secretary of State of Texas) in the Dallas - Fort
            Worth Metroplex.

                                  ARTICLE VII.

                                  MISCELLANEOUS

      7.1 Conflict with Regulations. In case of a conflict of a provision of
this Agreement with any provision set forth in the Regulations of the Company,
the provisions of this Agreement shall prevail.

      7.2 Specific Performance; Attorneys' Fees. Should any Member fail or
refuse to comply with any of the terms and provisions of this Agreement, the
same may be enforced by specific performance. Should it be necessary to retain
legal counsel to enforce the terms and provisions hereof, the defaulting Member
shall be charged with all responsibility for legal fees, arbitration expense,
court costs and litigation expenses incurred in the enforcement of this
Agreement.

      7.3 Benefit. This Agreement shall be binding upon and shall operate for
the benefit of the Member and their respective executors, administrators,
successors and assigns.

      7.4 Entire Agreement and Amendments. This Agreement contains the entire
Agreement between the parties with respect to the subject matter hereunder and
no waiver, alteration or modification of any of the provisions hereof shall be
binding unless it is in writing and consented to by the Members as set forth in
Subsection 3(c) above.
                                       9

      7.5 Governing Law. This Agreement shall be governed by the laws of the
State of Texas. Any suits arising under this Agreement shall be brought in
Dallas County, Texas.

      7.6 Severability. In case any term, phrase, clause, paragraph, section
restriction, covenant or agreement contained in this Agreement shall be held to
be invalid or unenforceable, the same shall be deemed and it is hereby agreed
that the same is meant to be severable, and shall not defeat or impair the
remaining provisions hereof.

      7.7 Waiver. The waiver by any party of a breach of any provision of this
Agreement by any other party shall not operate or be construed as a waiver of
any subsequent or continuing breach of this Agreement by such other party.

      7.8 Assignability. This Agreement shall not be assigned by any party
without the prior consent of all other parties.

      7.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been delivered on the
date personally delivered or on the date mailed, by registered or certified
mail (return receipt requested, postage prepaid, if addressed to the parties at
the addresses set forth opposite their respective signatures at the end of this
Agreement. Any party hereto may designate a different address by providing
notice of such new address to the other parties hereto.

      7.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.

      IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on
the date and year first above written.

                                       THE COMPANY:

                                       DOMINION TITLE OF DALLAS, L.L.C.

                                       By: /s/ John W. Mahoney
                                          ------------------------------
                                       Printed Name: John W. Mahoney
                                       Title: President

                                       Address: ________________________
                                                ________________________

                                       10


                                       THE MEMBERS:

                                       STEWART TITLE DALLAS, INC.

                                       By: /s/ John M. McCain
                                          ------------------------------
                                       Printed Name: John M. McCain
                                       Title:  Executive Vice President

                                       Address: _________________________
                                                ________________________

                                       ASHTON DALLAS RESIDENTIAL, L.L.C.

                                       By: /s/ Stephanie MacLean
                                          ------------------------------
                                       Printed Name: Stephanie MacLean
                                       Title:   _______________________

                                       Address: _______________________
                                                _______________________

                                       11

EX-10.10

                                                                   EXHIBIT 10.10

                             DOMINION TITLE, L.L.C.

                               MEMBERS' AGREEMENT

         THIS AGREEMENT, dated June 7, 1999, is among STEWART TITLE COMPANY, a
Texas corporation ("STEWART") and DALTOR HOUSTON TITLE, INC., a Texas
corporation ("DALTOR") (all hereinafter sometimes collectively called the
"Members" and singly called "Member"), and DOMINION TITLE, L.L.C., a Texas
limited liability company (the "Company").

         WHEREAS, the Members are the owners of all of the outstanding ownership
interests ("Membership Interest") of the Company, as follows:



Member                                            Membership Interest
- ------                                            -------------------
                                                        
STEWART                                                    51%
DALTOR                                                     49%


         WHEREAS, the Members desire to enter into certain agreements relating
to the ownership, voting and transferability of the Membership Interest;

         NOW, THEREFORE, in consideration of the mutual promises and other
valuable considerations, the Members and the Company agree as follows:

                                   ARTICLE I.

                        RESTRICTIONS ON TRANSFERABILITY

         1.1 General Restrictions on Transferability of Membership Interest. The
following restrictions shall apply to all Membership Interests of the Company.
These restrictions are in addition to any restrictions in the Regulations
("Regulations") of the Company.

         1.2 Specific Restriction on Transferability. Except as hereinafter
provided in this Agreement and the Regulations, no Member may make, cause or
allow any transfer, sale, passage, assignment, gift, exchange, distribution,
transfer, pledge, mortgage, encumbrance or any other disposition of its
Membership Interest whatsoever, whether voluntarily or involuntarily or directly
or indirectly, except with the written consent of the Company and all other
Members. If such consent is given, it shall also be deemed to constitute a vote
of all of the remaining Members to continue the business of the Company.
Provided, however, that each of Stewart and DALTOR shall have the right to
transfer its Membership Interest to its parent company, or to any subsidiary or
affiliated company which is controlled by Stewart and/or its parent company, or
DALTOR and/or its parent company, respectively, without






triggering any of the provisions of this Agreement as long as such transferee
corporation executes and agrees to be bound by the provisions of this Members'
Agreement. Notwithstanding the foregoing, in the event:

         (a)      a Member receives a bona fide offer in writing to purchase any
                  Membership Interest owned by such Member or any part thereof
                  which such Member is willing to accept;

         (b)      a Member corporation is dissolved, liquidated or merged where
                  the Member corporation is not the surviving corporation;

         (c)      the controlling shareholder(s) of a Member changes;

         (d)      any Membership Interest owned by a Member becomes subject to
                  an involuntary disposition, including, without limitation, any
                  disposition pursuant to or by reason of or under judicial
                  order, legal or equitable process, execution, attachment or
                  enforcement of a pledge, trust or other security interest or
                  encumbrance; or

         (e)      a Member (i) files an application for, or consents to, the
                  appointment of a trustee of such Member's assets, (ii) files a
                  voluntary petition in bankruptcy or files a pleading in any
                  court of record admitting in writing such Member's inability
                  to pay debts as they come due, (iii) makes a general
                  assignment for the benefit of creditors, (iv) files an answer
                  admitting the material allegations of, consents to, or
                  defaults in answering a bankruptcy petition filed against such
                  Member in any bankruptcy proceeding or (v) has an order,
                  judgment or decree by any court of competent jurisdiction
                  entered against such Member adjudicating such Member as
                  bankrupt or appointing a trustee of such Member's assets and
                  such order, judgment or decree is not dismissed within ninety
                  (90) days after its issuance;

and all the remaining Members consent to continue the business of the Company,
then, unless the Company and the other Members agree in writing otherwise, all
of the Membership Interest owned by such Member, or that portion of the
Membership Interest so affected, shall be automatically subject to the purchase
options as provided in this Agreement, any written notification requirement is
waived, and there is an automatic requirement to offer to sell such Membership
Interest upon the happening of the above described events. Failure to send any
written notification does not terminate or invalidate the automatic requirement
to offer to sell such Membership Interest as provided in this Agreement.




                                       2



         1.3 Requirements of Offer. If any Member or its legal representative is
required to extend the purchase option as provided in this Agreement, such
Member or its legal representative (hereinafter referred to as the "Offering
Member") shall offer in writing to sell such Membership Interest to the Company
by notice to the Secretary of the Company.

         1.4 Offer to the Company. On or before the expiration of thirty (30)
days from the date of receipt by the Company of the aforesaid notification, the
Secretary of the Company shall certify in writing to the Offering Member the
percentage, if any, of such Offering Member's Membership Interest which has been
elected to be purchased by the Company pursuant to the provisions hereof, and
the Secretary shall deliver to the Offering Member the total purchase price
thereof, at which time the sale of such Membership Interest and all rights
incident to ownership thereof shall be deemed to occur. The Secretary shall
thereupon cause proper notation to be made in the books and records of the
Company.

         1.5 Offer to the Other Members. If the Company elects not to purchase
all or any part of the Membership Interest of the Offering Member in accordance
with the terms of this Agreement, on or before thirty (30) days after receipt of
the written offer, the Secretary of the Company shall, by writing deposited in
the United States mails with postage prepaid, notify each of the other Members
(other than the Offering Member) as of the date of the receipt of notice by the
Secretary that the Offering Member has offered to sell some or all of its
Membership Interest, pursuant to the provisions of this Agreement, stating the
name of such Offering Member and the Membership Interest available for purchase
by the other Members. The other Members shall have thirty (30) days from the
date of mailing of such notification by the Secretary within which to exercise
their right to purchase all or any part of the offered Membership Interest that
they may purchase pursuant to the provisions of this Agreement.

         1.6 Consummation of Sales. At the expiration of thirty (30) days from
the date of sending the aforesaid notification to said Members, the Secretary of
the Company shall then certify in writing to the Offering Member the percentage,
if any, of such Offering Member's Membership Interest which has been elected to
be purchased by the other Members pursuant to the provisions hereof, and the
Secretary shall deliver to the Offering Member the total purchase price thereof,
at which time the sale of said Membership Interest and all rights incident to
ownership thereof shall deem to occur. The Secretary shall thereupon cause
proper notation to be made in the books of the Company to reflect such transfer.

         1.7 Failure to Purchase Entire Membership Interest Offered. If, upon
completion of the procedure described above, all of the Membership Interest has
not been sold, the Offering Member shall



                                       3



have the right for a period of thirty (30) days after the expiration of the time
periods heretofore described to transfer any remaining unsold Membership
Interest that had theretofore been offered pursuant to the provisions hereof.
Notwithstanding the preceding sentence, no sale, transfer, pledge, assignment or
other disposition shall be effective unless and until the transferee executes
and delivers to the Company an agreement in respect of the Membership Interest
to be transferred to such transferee, which agreement shall be substantially in
the form of this Agreement with such modifications as the Company determines to
be appropriate. If the ownership of the offered Membership Interest is not
transferred to a third party before the expiration of the thirty (30) day
period, such Membership Interest shall again be subject to the restrictions of
transferability provided in this Agreement.

                                  ARTICLE II.

                                 PURCHASE PRICE

         2.1 Purchase Price Under Section 1.2 (a) - Bona Fide Offers. In
connection with any purchase of any Membership Interest owned by a Member
(hereinafter called the "Selling Member" by the Company or any other Members
pursuant to this Agreement as a result of an offer made to the Company or such
other Members arising out of a bona fide offer in writing received by the
Selling Member (as described in Section 1.2 (a) hereof), the price which the
Company or such other Members shall pay for such Membership Interest shall be
the same price that the bona fide offeror for such Membership Interest shall
have so offered for such Membership Interest. The purchase price determined
pursuant to the provisions of this Section 2.1 shall be paid on the same terms
as the bona fide offer.

         2.2 Purchase Price - Generally. In connection with any other purchase
of a Membership Interest owned by any Selling Member, by the Company or any
other Member under Sections 1.2(b)-(e), the purchase price per percentage of
Membership Interest for such Membership Interest shall be the Fair Value of such
Membership Interest as defined in Section 2.4 below.

         2.3 Determination Date. As used herein, "Determination Date" means, in
connection with any offer or any event which causes an offer for sale of the
Membership Interest owned by a Selling Member pursuant to this Agreement, the
date upon which the Selling Member or its legal representative delivers to the
Secretary of the Company notice of its offer in writing of such Membership
Interest, or if no such notice is delivered, the date of occurrence of the event
or the determination by the Managers of the Company of the existence of the
condition which subjects the Selling Member's Membership Interest to such offer,
as the case may be.


                                       4



         2.4 Determination and Payment of Purchase Price.

         (a) Except as otherwise provided in Section 2.1 hereof, the purchase
price to be paid for the purchase of a Membership Interest of the Company
pursuant to this Agreement shall be determined from unaudited financial
statements of the Company at the date and for the period indicated in the
foregoing provisions hereof, prepared by the Company's independent public
accountants in accordance with generally accepted accounting principles
consistently applied. "Fair Value" of each percentage of Membership Interest
shall be determined by multiplying the average Net Pre-Tax Earnings per
percentage of Membership Interest of the Company for the completed full five (5)
fiscal years immediately preceding the exercise of the right of first refusal,
by four (4). If the purchase price has to be determined pursuant to this Section
2.4(a) before the expiration of five (5) full fiscal years of the Company, then
the Net Pre-Tax Earnings of the Company shall be determined by adding the Net
Pre-Tax Earnings of the Company for each year prior to the Determination Date
and dividing the total by the number of actual full fiscal years lapsed;
provided, however, that if the Company shall be in the third or forth quarter of
its current fiscal year at the time the purchase price has to be determined
pursuant to this Section 2.4(a), the Net Pre-Tax Earnings for such most recent
fiscal year shall be determined (and used as the amount for one fiscal year in
the above calculation) by dividing the amount of the Net Pre-Tax Earnings for
the current fiscal year (up to and including the last complete month) by the
number of complete months of such fiscal year and multiplying such amount by
twelve.

         (b) "Net Pre-Tax Earnings" shall be calculated in accordance with
generally accepted accounting principles, consistently applied.

         (c) Except as provided in Section 2.1 hereof, such purchase price shall
be payable, at the election of the purchaser of such Membership Interest, in
cash upon consummation of such purchase, or at least ten percent (10%) in cash
upon consummation of such purchase and the balance thereof evidenced by a
promissory note of such purchaser, payable to the seller of such Membership
Interest of such principal amount. Such promissory note shall be payable, at the
election of such purchaser, in up to five (5) equal annual installments of
principal which shall be due and payable on the succeeding anniversary dates of
the making thereof, and shall bear interest at the prime rate of interest
published in the Wall Street Journal, Southwest Edition, in effect on the
applicable Determination Date. Such promissory note, or any portion thereof, may
be prepaid without penalty.


                                       5



                                  ARTICLE III.

                                MAJOR DECISIONS

         Subject to the additional requirements in Subsection (c) below, the
Company shall not undertake the following actions without an affirmative vote of
seventy percent (70%) or more of the Membership Interest of the Company:

         (a)      Distributions. Except as hereinafter provided in this
                  Paragraph (a), make any distribution, either directly or
                  indirectly, and whether in cash or property or an obligation
                  of the Company. Notwithstanding the foregoing, from time to
                  time (but at least once each calendar month), the Managers
                  shall determine in their reasonable judgment to what extent
                  the Company's cash on hand exceeds its current and anticipated
                  needs, including, without limitation, for operating expenses
                  for thirty days, debt service, immediate capital expenditures
                  and reasonable contingency reserves. If such an excess exists,
                  the Managers shall cause the Company to distribute to the
                  members in the same ratio as profits and losses of the
                  Company, an amount in cash equal to that excess. From time to
                  time, the Managers also may cause property of the Company
                  other than cash to be distributed to the members, which
                  distribution must be made, in the same ratio as profits and
                  losses of the Company, and may be made subject to existing
                  liabilities and obligations. Immediately prior to such a
                  distribution, the capital accounts of the members shall be
                  adjusted as provided in Treas. Reg. Section
                  1.704-1(b)(2)(iv)(f).

         (b)      Prohibition of Mergers, Sales of Assets, Etc. The Company will
                  not, and will not cause or permit any subsidiary to, (i) merge
                  or consolidate with another entity, (ii) sell, lease, exchange
                  or otherwise dispose of all or substantially all of its assets
                  or (iii) enter into or effect a recapitalization or
                  reorganization.

         (c)      Amendment to Corporate Documents. The Company shall not amend
                  its Articles of Organization, Regulations or this Member's
                  Agreement. Provided, however, that amendments of Sections 5.4
                  (Additional Contributions), 5.8 (Transfer and Assignability of
                  Membership Interest), 5.9 (Resignation of Member) and Article
                  XI (Amendments) of the Regulations and of Sections 1.1
                  (General Restrictions on Transferability of Membership
                  Interest) and 1.2 (Specific Restriction) of this Members'
                  Agreement require the consent of all Members.




                                       6



         (d)      Incurring Debt. The Company shall not borrow, mortgage any
                  Company assets, enter into any financing and/or credit
                  facility agreement, excluding trade accounts payable incurred
                  in the ordinary course of business, for an amount equal or
                  superior to FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) in
                  the aggregate in any one (1) year.

         (e)      Member Loans. The Company shall not borrow any funds from a
                  Member except pursuant to Section 5.5(a) of the Regulations.

         (f)      Underwriter. The Company shall not use any title underwriter
                  other than Stewart Title Guaranty Company.

         (g)      Title Examination Fee Assignments. The Company shall not
                  enter into, modify or terminate any title examination fee
                  agreements with Stewart or with any other title agents.

                                   ARTICLE IV.

                            COVENANTS OF THE MEMBERS

         The Members agree that for as long hereafter as any Member shall own a
Membership Interest:

         (a)     Access to Information. The Company shall give to each Member,
                 such Member's counsel, accountants and other representatives,
                 access at reasonable times during normal business hours to all
                 of the properties, books and records of the Company, and shall
                 furnish each such Member with such information concerning the
                 Company as such Member may reasonably request.

         (b)      Financial Statements and Budgets. The Company shall complete
                  the financial statements for each month within five (5)
                  business days after the end of such month and shall furnish
                  them within fifteen (15) business days after the end of each
                  month to each member. The financial statements shall be
                  reviewed by the members on a quarterly basis. The Company
                  shall also prepare, and furnish to the members, an annual
                  budget, which shall be updated quarterly with regard to the
                  Company's progress against the budget.

         (c)      Business With Members. The Company shall be permitted to
                  transact business with any Member, provided the transaction is
                  competitive within the industry, and the Member receives no
                  preferential benefit.


                                       7



                                   ARTICLE V.

                                VOTING AGREEMENT

         The Members agree to vote their membership interest in favor of;

         (a) the election of a number of persons designated by DALTOR equal to
at least 40% of the total number of managers of the Company; and

         (b) The election of a number of persons designated by STEWART equal to
the remaining number of managers of the Company.

                                   ARTICLE VI.

                        DISSOLUTION AND NON-COMPETITION

         6.1 Dissolution. In addition to the events of dissolution set forth in
 Section 10.1 of the Regulations of the Company, any Member may cause the
 dissolution of the Company for any reason, after the Company has been in
 existence for at least nine (9) months, by giving ninety (90) days' written
 notice to the other Members at the addresses set forth below.

         6.2  Non Competition.

         (a) Margin Below 20%. If DALTOR elects to dissolve the Company as set
forth in Section 6.1 above and the Margin (as defined below) has been below
twenty percent (20%) for any four (4) of the immediately preceding eight (8)
consecutive months before the notice of dissolution is given, DALTOR agrees not
to invest, directly or indirectly, in any title insurance company or title agent
in the Greater Houston Metropolitan Area for six (6) months after the
dissolution of the Company.

         (b) Generally. If DALTOR elects to dissolve the Company pursuant to
Section 6.1 and subsection 6.2(a) does not apply, DALTOR agrees not to invest,
directly or indirectly, in any title insurance company or title agent in the
Greater Houston Metropolitan Area for twelve (12) months after the dissolution
of the Company.

         (c) Dissolution by Stewart. The foregoing non-compete provisions
shall not apply in the event STEWART elects to cause the dissolution pursuant to
Section 6.1 above.

         (d) Definition of Margin. The term "Margin" shall mean pre-tax income
divided by the net revenues of the Company.



                                       8



         6.3 Rights to Name. The parties hereby acknowledge that

         (a)      in the event the Company is dissolved, STEWART shall not have
                  the right to use the word "Dominion" in the corporate name of
                  any title insurance company or title agent, which is doing
                  business in the Greater Houston Metropolitan Area and is
                  controlled by STEWART, for a period of two (2) years from the
                  date the Articles of Dissolution of the Company are filed in
                  the Secretary of State's office; and

         (b)      as long as DALTOR (or an affiliate or parent company) is a
                  member of the Company and for a period of two (2) years after
                  a dissolution of the Company, neither DALTOR nor any entity
                  controlling DALTOR, or controlled by, or affiliated with,
                  DALTOR shall have the right to organize, form, participate or
                  otherwise become, directly or indirectly, involved with any
                  title insurance company or title agent with the name "Dominion
                  Title, L.L.C." or a deceptively similar name (as defined by
                  the Secretary of State of Texas) in the Greater Houston
                  Metropolitan Area.

                                  ARTICLE VII.

                                  MISCELLANEOUS

         7.1 Conflict with Regulations. In case of a conflict of a provision of
this Agreement with any provision set forth in the Regulations of the Company,
the provisions of this Agreement shall prevail.

         7.2 Specific Performance; Attorneys' Fees. Should any Member fail or
refuse to comply with any of the terms and provisions of this Agreement, the
same may be enforced by specific performance. Should it be necessary to retain
legal counsel to enforce the terms and provisions hereof, the defaulting Member
shall be charged with all responsibility for legal fees, arbitration expense,
court costs and litigation expenses incurred in the enforcement of this
Agreement.

         7.3 Benefit. This Agreement shall be binding upon and shall operate for
the benefit of the Member and their respective executors, administrators,
successors and assigns.

         7.4 Entire Agreement and Amendments. This Agreement contains the entire
Agreement between the parties with respect to the subject matter hereunder and
no waiver, alteration or modification of any of the provisions hereof shall be
binding unless it is in writing and consented to by the Members as set forth in
Subsection 3(c) above.

                                                                              2.


                                       9






         7.5 Governing Law. This Agreement shall be governed by the laws of the
State of Texas. Any suits arising under this Agreement shall be brought in
Harris County, Texas.

         7.6 Severability. In case any term, phrase, clause, paragraph, section
restriction, covenant or agreement contained in this Agreement shall be held to
be invalid or unenforceable, the same shall be deemed and it is hereby agreed
that the same is meant to be severable, and shall not defeat or impair the
remaining provisions hereof.

         7.7 Waiver. The waiver by any party of a breach of any provision of
this Agreement by any other party shall not operate or be construed as a waiver
of any subsequent or continuing breach of this Agreement by such other party.

         7.8 Assignability. This Agreement shall not be assigned by any party
without the prior consent of all other parties.

         7.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been delivered on the
date personally delivered or on the date mailed, by registered or certified mail
return receipt requested, postage prepaid, if addressed to the parties at the
addresses set forth opposite their respective signatures at the end of this
Agreement. Any party hereto may designate a different address by providing
notice of such new address to the other parties hereto.

         7.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.

         IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on
the date and year first above written.

                                    THE COMPANY:

                                    DOMINION TITLE, L.L.C.

                                    By: /s/ MARY ALICE GONZALEZ

                                    Printed Name: Mary Alice Gonzalez
                                    Title: President

                                    Address: 14100 Southwest Frwy, Suite 200-A
                                             Sugar Land, TX 77478




                                       10



                                    THE MEMBERS:

                                    STEWART TITLE COMPANY

                                    By: /s/ STEWART MORRIS, JR.
                                        -----------------------------
                                    Printed Name: Stewart Morris, Jr.
                                    Title: President

                                    Address: 1980 Post Oak Boulevard
                                             Houston, Texas 77055


                                    DALTOR HOUSTON TITLE, INC,

                                    By: /s/ [ILLEGIBLE]
                                        -----------------------------
                                    Printed Name: [ILLEGIBLE]
                                    Title: Authorized Representative

                                    Address: [ILLEGIBLE]
                                             Houston, Texas 77074



                                       11

EX-10.11

                                                                   Exhibit 10.11

                        ASSIGNMENT OF MEMBERSHIP INTEREST


         This ASSIGNMENT OF MEMBERSHIP INTEREST is entered into effective as
of the 1st day of June, 2002, by and between DALTOR HOUSTON TITLE, INC., a Texas
corportation {"Assignor"), and ASHTON HOUSTON RESIDENTIAL, LLC., a Texas limited
liability company ("Assignee").

         WHEREAS, Assignor currently owns a forty-nine percent (49%) membership
interest {the "Membership Interest") in DOMINION TITLE, L.L.C., a Texas limited
liability company (the "Company");

         WHEREAS, Assignor desires to assign all of its right, title and
interest to the Membership Interest to Assignee;

         WHEREAS, Assignor and Assignee acknowledge and have represented to the
other Member of the Company that they are affiliated companies as set forth in
Section 1.2 of the Members' Agreement of the Company, dated June 7, 1999 (the
"Members' Agreement");

         WHEREAS, Assignee has consented to such assignment and has agreed to be
bound by the Regulations of the Company, dated June 7,1999 (the "Regulations"),
and the Members' Agreement; and,

         WHEREAS, all of the Members of the Company have consented to such
assignment and transfer of membership interest;

         NOW, THEREFORE, in consideration of the mutal benefits to be derived
by the parties herein, it is agreed as follows:

         1. Assignor hereby transfers, conveys and assigns all of its right,
title and interest in the Membership Interest to Assignee.

         2. Assignee hereby accepts such assignment.

         3. As additional consideration for the transfer of the Membership
Interest, Assignee hereby agrees to be bound by all of the provisions of the
Regulations and the Members' Agreement in all regards as of it had been an
original signatory thereof.

         EXECUTED effective as of the date first written above.

                                ASSIGNOR:

                                DALTOR HOUSTON TITLE, INC.


                                By: /s/ Robert L. Salomon
                                Name: Robert L. Salomon
                                Title: Authorized Representative

                                ASSIGNEE:

                                ASHTON HOUSTON RESIDENTIAL, L.L.C.

                                By: /s/ Robert L. Salomon
                                Name: Robert L. Salomon
                                Title: Authorized Representative

                                AGREED:

                                STEWART TITLE COMPANY


                                By: /s/ E.D. LESTER
                                Name: E.D. Lester
                                Title: ILLEGIBLE
                                Date: 10-1-02

EX-10.12

                                                                   Exhibit 10.12

                                PROMISSORY NOTE
                                    ("Note")

$5,700,000.00

                                                                Orlando, Florida
                                                            As of April 27, 2004

         THE UNDERSIGNED, ("Maker"), promises to pay to the order of JOHN SHARP
("Payee"), whose mailing address is 700 Clay Street, Winter Park, Florida 32789,
the principal sum of FIVE MILLION SEVEN HUNDRED THOUSAND DOLLARS
($5,700,000.00), with interest on the unpaid principal from the date hereof at
the following rate and payable in the following manner:

         (a) The interest rate shall be a fixed rate equal to seven percent
(7.00%) per annum.

         (b) Principal shall be paid in five (5) equal annual installments of
One Million and No/100 Dollars ($1,000,000.00) plus interest commencing April
27, 2005 and each April 27th thereafter until the Maturity Date.

         (c) The entire unpaid principal balance, together with accrued
interest, shall be due and payable on or before April 26, 2010 ("Maturity
Date").

         Default Rate. After the occurrence of an Event of Default, as
hereinafter defined or after maturity, this Note and all sums due hereunder
shall bear interest at the highest rate allowed by law from the date of default
or maturity until paid.

         Interest Basis. Interest shall be calculated on the basis of a three
hundred sixty five (365) day year for actual days elapsed.

         Security. This Note is secured by, among other things, a Mortgage (the
"Mortgage") upon real property (the "Property") in Orange County, Florida. This
Note, the Mortgage and other loan documents as may be now or hereafter executed
in connection therewith ("Loan Document(s)") shall together evidence the debt
and constitute the security for the Note.

         Application of Payments. All payments made on the indebtedness
evidenced by this Note shall be applied first to repayment of monies paid or
advanced by Payee on behalf of the Maker in accordance with the terms of the
Loan Documents, and thereafter shall be applied to payment of accrued interest,
and lastly to payments of principal in the inverse order of their maturity. No
partial prepayment of principal will have the effect of postponing, satisfying,
reducing or otherwise affecting any scheduled installment before this Note is
paid in full.

         Prepayment. In the event the principal payment is repaid earlier from
one year from closing, a minimum of one year's interest shall by paid by Maker
to Payee.



         Place and Manner of Payment. All payments of interest and principal are
payable in lawful money of the United States of America in cash or immediately
available funds, or by check with credit to be given upon receipt (subject to
revocation of such credit should the check be returned for nonpayment for any
reason), at the Payee's office at which the payment is made, or at such other
place as the Payee may designate in writing.

         Events of Default. Maker shall be in default in this Note upon the
occurrence of any of the following events, circumstances or conditions (each an
"Event of Default"):

            (a) Maker's failure to make any payment of any sum due hereunder
within ten (10) days of the due date thereof to Maker,

            (b) "The existence of a default or breach of any of the terms of
this Note or any other Loan Document which is not cured within ten (10) days of
any occurrence.

         Remedies after Default. At the option of Payee, all or any part of the
principal and accrued interest on the Note, and all other obligations of the
Maker to the Payee shall become immediately due and payable without additional
notice a demand, upon the occurrence of an Event of Default or at any time
thereafter. Payee may exercise all rights and remedies provided by law, equity,
this Note or any other Loan Document or any other obligation of the Maker to the
Payee. All rights and remedies as set forth in the Loan Documents are cumulative
and concurrent and may be pursued singularly, successively or together, at the
sole discretion of Payee, and may be exercised as often as occasion therefore
shall arise. Such remedies are not exclusive, and Payee is entitled to all
remedies provided at law or equity, whether or not expressly set forth therein.
No act, or omission or commission or waiver of Payee, including specifically any
failure to exercise any right, remedy or recourse, shall be effective unless set
forth in a written document executed by Payee and then only to the extent
specifically recited therein. A waiver or release with reference to one event
shall not be construed as continuing, as a bar to, or as a waiver or release of,
any subsequent right, remedy or recourse as to any subsequent event, nor shall
any single or partial exercise thereof preclude any other or further exercise or
the exercise of any other right, remedy or recourse. No notice to or demand on
any party liable for the payment of this Note in any case shall entitle any such
party to any other or further notice or demand in the same, similar or other
circumstances unless specifically requested in writing pursuant to the terms of
the Loan Documents.

         Taxes. All parties liable for the payment of this Note agree to pay all
documentary stamp tax, nonrecurring intangible tax, and all interest and
penalties, if any, on this Note and advances hereunder and on any instrument
securing the foregoing.

         Collection Expenses. All parties liable for the payment of the Note
agree to pay the Payee all costs incurred by the Payee, whether or not an action
be brought, in collecting the sum s due under the Note, enforcing the
performance and/or protecting its rights under the Loan Documents and in
realizing on any of the security for the Note. Such costs and expenses shall
include, but are not


                                      -2-


limited to, filing fees, costs of publication, deposition fees, stenographer
fees, witness fees and other court and related costs. Sums advanced by the
Payee for the payment of collection costs and expenses shall accrue interest at
the Penalty Rate, from the time they are advanced or paid by the Payee, and
shall be due and payable upon payment by Payee without notice or demand and
shall be secured by the lien of the Mortgage.

         Attorneys' Fees. All parties liable for the payment of the Note agree
to pay the Payee reasonable attorneys' fees incurred by the Payee, whether or
not an action be brought, in collecting the sums due under the Note, enforcing
the performance and/or protecting its rights under the Loan Documents and in
realizing on any of the security for the Note. Such reasonable attorneys' fees
shall include, but not be limited to, fees for attorneys, paralegals, legal
assistants, and expenses incurred in any and all judicial, bankruptcy,
reorganization, administrative, receivership, or other proceedings effecting
creditor's rights and involving a claim under the Note or any Loan Document,
which such proceedings may arise before or after entry of a final judgment. Such
fees shall be paid regardless whether suit is brought and shall include all fees
incurred by Payee at all trial and appellate levels including bankruptcy court.
Sums advanced by the Payee for the payment of attorneys' fees shall
accrue bankruptcy interest at the Penalty Rate, from the time they are advanced
by the Payee, and shall be due and payable upon payment by Payee without notice
or demand and shall be secured by the lien of the Mortgage.

         Waiver and Consent. By the making, signing, or endorsement of this
Note:

            (a) Maker waives demand, presentment, protest, notice of protest,
notice of dishonor, suit against any party and all of the requirements
necessary to hold any maker liable;

            (b) Maker and each co-signer consents to Payee's release of,
agreement not sue, suspension of the right to enforce this instrument against
and discharge or compromise of any obligation of any co-signer all without
notice to or further reservations of rights against any of such parties, and all
without in any way affecting or releasing the liability of any of such parties;

            (c) Maker and each co-signor waives and consents to the release,
substitution, impairment, exchange and other dealing in any manner with all or
any portion of any collateral securing this Note and any right of set-off that
may now or hereafter secure this Note, all without notice to or further
reservations of rights against any of such parties, and all without in any way
affecting or releasing the liability of any of such parties, even though such
release, substitution, impairment, exchange or other dealing may in any manner
and to any extent impair any such collateral, lien or right of set-off;

         Choice of Law and Venue. This Note shall be governed by the Laws of the
State of Florida, and the United States of America, whichever the context may
require or permit. The Maker to this obligation expressly agrees that proper
venue for any action which may be brought under this Note in addition to any
other venue permitted by law shall be any county in which property encumbered


                                      -3-


by the Mortgage is located. Should Payee institute any action under this Note,
the Maker hereby submits to the jurisdiction of any court sitting in Florida,

         Severability. If any provision of this Note shall be held
unenforceable or void, then such provision shall be deemed severable from the
remaining provisions and shall in no way affect the enforceability of the
remaining provisions nor the validity of this Note.

         Time of the Essence. Time is of the essence with respect to each
provision in this Note where a time or date for performance is stated. All time
periods or dates for performance stated in this Note are material provisions of
this Note.

         Documentary Stamps. Florida Documentary stamp tax as required by
Chapter 201 of the Florida Statutes in the amount required by Florida law have
been paid and are affixed to the original Mortgage and Security Agreement, of
even date herewith, which secures this Note.

         IN WITNESS WHEREOF, Maker has executed and delivered this instrument
this day and year first above written.

                                           BLACK AMBER DEVELOPMENT, INC.
                                           an Ontario corporation

                                           By: /s/ RUSSEL ALLEN
                                               -------------------------------
                                                   Russel Allen,
                                                   its President


                                           ASHTON WOODS ORLANDO LIMITED
                                           PARTNERSHIP, a Florida limited
                                           partnership

                                           By: Ashton Woods Lakeside, LLC,
                                               a Nevada limited liability
                                               company, its General Partner

                                               By: /s/ HARRY ROSENBAUM
                                                   ---------------------------
                                                       Harry Rosenbaum,
                                                       its Manager

EX-10.13

                                                                   EXHIBIT 10.13

                                 PROMISSORY NOTE

$15,000,000.00                                               January _____, 2005

      FOR VALUE RECEIVED, ASHTON WOODS USA L.L.C., a Nevada limited liability
company (hereinafter collectively referred to as "Maker"), promises to pay to
the order of LARELNOR DEVELOPMENTS INC., an Ontario corporation (hereinafter
together with all subsequent holders hereof referred to as "Payee"), the
principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00) or so much
thereof as may be outstanding hereunder, together with interest thereon at the
rate provided below. The principal of and interest on this Note shall be due and
payable in lawful money of the United States of America, at the offices of Payee
in Toronto, Ontario, or at such other place as the holder hereof may from time
to time designate by written notice to Maker.

      1.    INTEREST. This Note shall bear interest on the unpaid principal
balance hereof from day to day remaining from the date hereof until maturity at
a rate per annum equal to the lesser of (a) the maximum lawful rate or (b) three
quarters of one percent (3/4%) above the Floating Base Rate. As used herein, the
term "Floating Base Rate" means the base commercial rate of interest established
from time to time by Wachovia Bank, National Association, for short-term
unsecured loans to substantial and responsible commercial borrowers, each change
in the rate charged hereunder to become effective, without notice to Maker, on
the effective date of each change in the Floating Base Rate.

      2.    DEFAULT INTEREST. All past due principal and interest of this Note,
whether due as a result of acceleration of maturity or otherwise, shall bear
interest at the Maximum Rate from the date of maturity until paid, or if no such
rate is designated under applicable law then at an annual rate equal to eighteen
percent (18%).

      3.    PAYMENT OF NOTE. The unpaid principal sum of this Note together with
all accrued and unpaid interest shall become due and payable on demand.

      4.    PREPAYMENT. Maker may prepay this Note, in whole or in part, at any
time, or from time to time, without penalty, premium or notice. All amounts so
prepaid shall be applied first to accrued and unpaid interest then due hereon,
and thereafter to the outstanding principal balance of this Note in direct order
of maturity.

      5.    DEFAULT; ENFORCEMENT. The entire unpaid principal balance of, and
all accrued interest on, this Note shall immediately become due and payable,
without further notice or demand, at the option of the holder hereof, upon the
occurrence of any one or more of the following events of default ("Events of
Default"):

            (a)   Failure by Maker to make prompt payment of any installment of
      principal hereof or interest hereon as and when same becomes due and
      payable in accordance with the terms hereof and said failure shall
      continue for twenty (20) days after receipt of written notice of said
      failure from the holder hereof;

            (b)   Failure by Maker to keep and perform any of the covenants or
      provisions of any deed of trust, mortgage, security agreement, assignment,
      loan agreement or other agreement securing this Note or evidencing the
      loan evidenced hereby, and said failure shall continue for twenty (20)
      days after receipt of written notice of said failure from the holder
      hereof; or



            (c)   The bankruptcy or insolvency of, the assignment for the
      benefit of creditors by, or the appointment of a receiver for any property
      of any party liable for the payment of this Note, whether as maker,
      endorser, guarantor, surety or otherwise.

      In the event any one or more of the Events of Default specified above
shall have occurred, the holder of this Note may, at its option, declare the
entire unpaid principal balance of, and accrued and unpaid interest on, this
Note to be immediately due and payable without notice or demand, foreclose all
liens and security interests securing the payment of this Note, or any part
thereof, and pursue any and all other remedies to which Payee may be entitled,
at law or in equity.

      6.    CUMULATIVE RIGHTS. No failure or delay on the part of the holder of
this Note in the exercise of any power or right under this Note or under any
other instrument securing the payment of this Note or executed pursuant hereto
shall operate as a waiver thereof, nor shall a single or partial exercise of any
other power or right preclude other or further exercise thereof or the exercise
of any other power or right. Enforcement by the holder of this Note of any
security for the payment hereof shall not constitute any election by it of
remedies so as to preclude the exercise of any other remedy available to it and
Maker shall remain liable for all amounts remaining unpaid with respect to the
principal of and interest accrued on this Note, after any application of
proceeds of any such enforcement of security.

      7.    WAIVER. Except as otherwise expressly provided herein, Maker (a)
waives demand, presentment for payment, notice of intent to accelerate, notice
of acceleration, notice of non-payment or dishonor, grace, protest, notice of
protest, all other notices, and any and all diligence or delay in collection or
the filing of suit hereon or enforcing any of the security herefor, (b) agrees
to any substitution, subordination, exchange or release of any such security or
the release of any party primarily or secondarily liable herefor, and (c) agrees
that Payee shall not be required to first institute suit or exhaust its remedies
against Maker or to enforce its rights against any security securing the
indebtedness evidenced by this Note.

      8.    NOTICES. All notices or demands required or permitted hereunder
shall be in writing, and shall be deemed to be delivered, (i) upon receipt, if
hand delivered, or (ii) whether actually received or not, upon the deposit of
both the original and the copy, as provided below, in a regularly maintained
official depository for the mail, and sent by certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:

If to Payee:

3751 Victoria Park Avenue
Toronto, Ontario M1W 3Z4
Canada

If to Maker:

3751 Victoria Park Avenue
Toronto, Ontario M1W 3Z4
Canada

      Either Maker or Payee may change its respective address or addressee by
giving notice of such change to the other party in the manner provided herein.
For the purpose of changing such addresses or addressees only, unless and until
such written notice is actually received, the last address and addressee
specified for each party shall be deemed to continue in effect for all purposes.

                                       2


      9.    GOVERNING LAW AND VENUE. This Note shall be construed according to
and governed by the laws of the Province of Ontario, Canada. The obligations of
Maker under this Note are performable in the Province of Ontario, Canada.

      10.   HEADINGS. The paragraph headings of the sections of this Note are
inserted for convenience of reference only, and shall not affect the meaning or
interpretation of this Note.

      11.   LIMITATION OF INTEREST. All agreements between Maker and Payee,
whether now existing or hereafter arising and whether written or oral, are
expressly limited so that in no contingency or event whatsoever, whether by
reason of advancement of the proceeds hereof, acceleration of the maturity of
the unpaid principal balance hereof or otherwise, shall the amount contracted
for, charged, received, paid or agreed to be paid to the holder hereof for the
use, forbearance or detention of the money to be loaned hereunder or otherwise
or for the payment or performance of any covenant or obligation contained herein
or in any other document evidencing, securing or pertaining to the indebtedness
evidenced by this Note exceed the maximum amount permissible under applicable
law. In this connection, it is expressly stipulated and agreed that it is the
intent of Payee and Maker in the execution and delivery of this Note to contract
in strict compliance with applicable usury laws. If, from any circumstance
whatsoever, fulfillment of any provision hereof or any other agreement shall, at
the time fulfillment of such provision be due, involve transcending the limit of
validity prescribed by law which a court of competent jurisdiction may deem
applicable hereto, then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity; and if from any circumstance the holder
hereof shall ever receive as interest an amount which would exceed the maximum
lawful rate, any amount equal to any excessive interest shall (a) be applied to
the reduction of the unpaid principal balance due hereunder and not to the
payment of interest or (b) if such excess interest exceeds the unpaid principal
balance of this Note, such excess shall be refunded to Maker. All sums
contracted for, charged or received hereunder for the use, forbearance or
detention of the indebtedness evidenced hereby shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of this Note until payment in full so that the rate of interest on account
of such indebtedness is uniform throughout the term hereof. The terms and
provisions of this paragraph shall control and supersede every other provision
of all agreements between Maker and the holder hereof.

      12.   SUCCESSORS AND ASSIGNS. All of the covenants, stipulations, promises
and agreements contained in this Note by or on behalf of Maker shall bind
Maker's heirs, personal representatives, successors and assigns, whether so
expressed or not.

      13.   COLLECTION COSTS. If this Note is collected by legal proceeding or
through a probate or bankruptcy court, or is placed in the hands of an attorney
for collection after default (whether or not suit is filed), Maker agrees to pay
all costs of collection and/or suit, including but not limited to reasonable
attorneys' fees incurred by Payee.

      14.   UNENFORCEABILITY. The invalidity, or unenforceability in particular
circumstances, of any provision of this Note shall not extend beyond such
provision or such circumstances, and no other provision of this Note shall be
affected thereby.

      15.   SEVERAL OBLIGATIONS. Notwithstanding that this Note may be executed
by more than one entity, the obligations contained herein shall be several (and
not the joint) obligations of each entity executing this Note, and the liability
of each party hereunder shall be limited to the amount of the advances made
hereunder by Payee to such party, together with interest thereon and any other
costs and/or expenses provided herein.

      16.   PAYMENT DATES. If any payment of principal and/or interest on this
Note shall become due on a Saturday, Sunday or any other legal holiday, such
payment shall be paid on the next succeeding business day, and such extension of
time shall in such event be included in computing the amount of interest payable
in connection with such payment.

                                       3


      17.   SUBORDINATE NOTE. This Note is expressly subordinate, subject and
inferior to the indebtedness evidenced by the Promissory Notes executed by Maker
in connection with the Credit Agreement dated January 19, 2005, executed by
Borrower, Wachovia Bank, National Association, Bank of America, N.A., KeyBank,
National Association, First American Bank, Guaranty Bank, Comerica Bank,
National City Bank, U.S. Bank National Association, and Wachovia Bank, National
Association, as Agent for Banks.

      18.   REVOLVING LINE OF CREDIT. This Note evidences a portion of an
existing revolving line of credit extended by Payee to Maker and Maker
acknowledges that all or a portion of the line of credit has previously been
advanced by Payee to Maker. Maker may request advances and make payments
hereunder from time to time. The unpaid balance of this Note shall increase and
decrease with each new advance or payment hereunder, as the case may be, but in
no event shall the unpaid balance hereof exceed $15,000,000.00

      19.   FUTURE ADVANCES. A portion of the principal amount of this Note may
represent money which will be advanced to Maker in a series of advancements to
be made from time to time. At the time any such advance is made, it shall not be
necessary for Maker to execute any further notes to evidence the obligation of
Maker to pay the amount of each advance, together with interest thereon as
provided by the terms of this Note.

      IN WITNESS WHEREOF, the Maker has duly executed this Note as of the day
and year first above written.

                                       ASHTON WOODS USA L.L.C.,
                                       a Nevada limited liability company

                                       By:      ________________________________
                                                Harry Rosenbaum, Manager

                                       4

EX-12.1

                                                                    EXHIBIT 12.1


                             ASHTON WOODS USA L.L.C.
     STATEMENT REGARDING COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
                          (IN THOUSANDS, EXCEPT RATIOS)




                                                                                                         SIX
                                                                                                         MONTHS
                                                                  YEAR ENDED MAY 31,                     ENDED
                                                    -----------------------------------------------   -----------
                                                     2005      2004       2003      2002      2001     11/30/2005
                                                    -------   -------   -------   -------   -------   -----------
                                                                                     
EARNINGS:
  Income before income taxes                         59,454    42,427    16,497    14,193    13,605       30,862
  Less:
  Earnings from unconsolidated entities              (1,571)   (1,259)   (1,523)     (543)     (353)     (1,188)
  Minority interest                                     398       112        12        --      (175)         --
  Fixed charges (from below)                          5,185     5,200     6,053     8,186    10,428       5,659
  Distributed income of unconsolidated entities       1,571     1,259     1,523       543       353       1,188
  Less: interest capitalized                         (4,840)   (4,932)   (5,796)   (7,960)  (10,243)     (5,396)
  Interest amortized to cost of sales                 4,790     5,822     7,460     8,721    12,355       2,446
                                                    -------   -------   -------   -------   -------   ---------

    Earnings available for fixed charges             64,987    48,629    24,226    23,140    25,970      33,571
                                                    -------   -------   -------   -------   -------   ---------

FIXED CHARGES:
  Interest incurred, including capitalized            4,840     4,932     5,796     7,960    10,243       5,396
  amounts and amortization of debt costs
  Estimated interest component of rent expense          345       268       257       226       185         263
                                                    -------   -------   -------   -------   -------   ---------

    Total fixed charges                               5,185     5,200     6,053     8,186    10,428       5,659
                                                    -------   -------   -------   -------   -------   ---------

RATIO OF EARNINGS TO FIXED CHARGES                    12.53      9.35      4.00      2.83      2.49        5.93
                                                    -------   -------   -------   -------   -------   ---------

EX-23.7

(KPMG LOGO)

               KPMG LLP
               Suite 2000
               303 Peachtree Street, NE
               Atlanta, GA 30308

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Members
Ashton Woods USA L.L.C.:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.


                                                 /s/ KPMG LLP

Atlanta, Georgia
January 27, 2006






          KPMG LLP, a U.S. limited liability partnership, is the U.S.
            member firm of KPMG International, a Swiss cooperative.

EX-25.1

                                                                    EXHIBIT 25.1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                           --------------------------

                                    FORM T-1

                         STATEMENT OF ELIGIBILITY UNDER
                      THE TRUST INDENTURE ACT OF 1939 OF A
                    CORPORATION DESIGNATED TO ACT AS TRUSTEE
               Check if an Application to Determine Eligibility of
                     a Trustee Pursuant to Section 305(b)(2)

                            -------------------------

                         U.S. BANK NATIONAL ASSOCIATION
               (Exact name of Trustee as specified in its charter)

                                   31-0841368
                       I.R.S. Employer Identification No.

          800 Nicollet Mall
        Minneapolis, Minnesota                                  55402
- ----------------------------------------                      ----------
(Address of principal executive offices)                      (Zip Code)

                              Raymond S. Haverstock
                         U.S. Bank National Association
                              60 Livingston Avenue
                               St. Paul, MN 55107
                                 (651) 495-3909
            (Name, address and telephone number of agent for service)

                             Ashton Woods USA L.L.C.
                                       And
                            Ashton Woods Finance Co.
                     (Issuer with respect to the Securities)

             Nevada                                       78-2721881

            Delaware                                      20-3548058
- -------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

      1080 Holcomb Bridge Road
      Building 200, Suite 350                               30076
      Roswell, GA
- ----------------------------------------                  ----------
(Address of Principal Executive Offices)                  (Zip Code)

                     9.5% SENIOR SUBORDINATED NOTES DUE 2015
                       (TITLE OF THE INDENTURE SECURITIES)

================================================================================







                                    FORM T-1

ITEM 1.  GENERAL INFORMATION. Furnish the following information as to the
         Trustee.

         a)       Name and address of each examining or supervising authority to
                  which it is subject.
                           Comptroller of the Currency
                           Washington, D.C.

         b)       Whether it is authorized to exercise corporate trust powers.
                           Yes

ITEM 2.  AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the
         Trustee, describe each such affiliation.
                  None

ITEMS 3-15        Items 3-15 are not applicable because to the best of the
                  Trustee's knowledge, the obligor is not in default under any
                  Indenture for which the Trustee acts as Trustee.

ITEM 16. LIST OF EXHIBITS: List below all exhibits filed as a part of this
         statement of eligibility and qualification.

         1. A copy of the Articles of Association of the Trustee.*

         2. A copy of the certificate of authority of the Trustee to commence
            business.*

         3. A copy of the certificate of authority of the Trustee to exercise
            corporate trust powers.*

         4. A copy of the existing bylaws of the Trustee.*

         5. A copy of each Indenture referred to in Item 4. Not applicable.

         6. The consent of the Trustee required by Section 321(b) of the Trust
            Indenture Act of 1939, attached as Exhibit 6.

         7. Report of Condition of the Trustee as of September 30, 2005
            published pursuant to law or the requirements of its supervising or
            examining authority, attached as Exhibit 7.

   * Incorporated by reference to Exhibit 25.1 to Amendment No. 2 to
   registration statement on S-4 filed by Revlon Consumer Products Corp.,
   Registration Number 333-128217, dated 11-22-2005.




                                       2







                                    SIGNATURE

         Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of St. Paul, State of Minnesota on the 4th of January, 2006.

                                            By:       /s/ Raymond S. Haverstock
                                                     ---------------------------
                                                     Raymond S. Haverstock
                                                     Vice President

By:       /s/ Richard Prokosch
         ---------------------
         Richard Prokosch
         Vice President










                                       3




                                                                       EXHIBIT 6

                                     CONSENT


         In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.

Dated:  January 4 2006

                                            By:       /s/ Raymond S. Haverstock
                                                     ---------------------------
                                                     Raymond S. Haverstock
                                                     Vice President

By:       /s/ Richard Prokosch
         ---------------------
         Richard Prokosch
         Vice President





                                       4




                                                                       EXHIBIT 7
                         U.S. BANK NATIONAL ASSOCIATION
                        STATEMENT OF FINANCIAL CONDITION
                                 AS OF 9/30/2005

                                    ($000'S)



                                                                     9/30/2005
                                                                    ------------
                                                                 
ASSETS
     Cash and Due From Depository Institutions                      $  6,913,461
     Securities                                                       41,305,628
     Federal Funds                                                     3,300,808
     Loans & Lease Financing Receivables                             132,797,940
     Fixed Assets                                                      1,767,618
     Intangible Assets                                                10,366,321
     Other Assets                                                     10,215,546
                                                                    ------------
     TOTAL ASSETS                                                   $206,667,322

LIABILITIES
     Deposits                                                       $130,337,423
     Fed Funds                                                        17,257,962
     Treasury Demand Notes                                                     0
     Trading Liabilities                                                 176,079
     Other Borrowed Money                                             25,506,397
     Acceptances                                                          85,177
     Subordinated Notes and Debentures                                 6,661,982
     Other Liabilities                                                 5,968,944
                                                                    ------------
     TOTAL LIABILITIES                                              $185,993,964

EQUITY
     Minority Interest in Subsidiaries                              $  1,029,440
     Common and Preferred Stock                                           18,200
     Surplus                                                          11,804,040
     Undivided Profits                                                 7,821,678
                                                                    ------------
         TOTAL EQUITY CAPITAL                                       $ 20,673,358

TOTAL LIABILITIES AND EQUITY CAPITAL                                $206,667,322


- --------------------------------------------------------------------------------

To the best of the undersigned's determination, as of the date hereof, the above
financial information is true and correct.

U.S. BANK NATIONAL ASSOCIATION

By:        /s/ Raymond S. Haverstock
         ---------------------------------------
           Vice President

Date:  January 4, 2006

                                       5

EX-99.1

Exhibit 99.1

LETTER OF TRANSMITTAL

Offer to Exchange

any and all outstanding

9.5% Senior Subordinated Notes due 2015,

which are not registered under the Securities Act of 1933,

for any and all outstanding

9.5% Senior Subordinated Notes due 2015,

which have been registered under the Securities Act of 1933,

of

ASHTON WOODS USA L.L.C.

and

ASHTON WOODS FINANCE CO.

PURSUANT TO THE PROSPECTUS DATED                     , 2006.

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON                , 2006,

UNLESS EXTENDED (THE “EXPIRATION DATE”). ORIGINAL NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M.,

NEW YORK CITY TIME, ON THE EXPIRATION DATE.

The Exchange Agent for the Exchange Offer is:

U.S. Bank, National Association

By Mail, Overnight Courier or Hand Delivery:

U.S. Bank, National Association

60 Livingston Avenue

EP-MN-WS2N

St. Paul, MN 55107

Attention: Specialized Finance Department

Reference: Ashton Woods USA L.L.C. Exchange

By Facsimile:

(651) 495-8158

Attention: Specialized Finance Department

Confirm by Telephone:

(800) 934-6802

Reference: Ashton Woods USA L.L.C. Exchange

To confirm by telephone or for information:

(800) 934-6802

Reference: Ashton Woods USA L.L.C. Exchange

      DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE OR OTHERWISE THAN AS PROVIDED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.

      This Letter of Transmittal is to be completed by holders of Original Notes (as defined below) either if Original Notes are to be forwarded herewith or if tenders of Original Notes are to be made by book-entry transfer to an account maintained by U.S. Bank, National Association (the “Exchange Agent”) at The Depository Trust Company (“DTC”) pursuant to the procedures set forth in “The exchange offer — Exchange Offer Procedures” in the Prospectus.

      Holders of Original Notes (i) whose certificates (the “Certificates”) for such Original Notes are not immediately available or (ii) who cannot deliver their Original Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date or (iii) who cannot complete the procedures for delivery by book-entry transfer prior to 5:00 p.m., New York City time, on the Expiration Date, must tender their Original Notes according to the guaranteed delivery procedures set forth in “The exchange offer — Guaranteed Delivery Procedures” in the Prospectus.

      SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

2

NOTE: SIGNATURES MUST BE PROVIDED BELOW

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

ALL TENDERING HOLDERS COMPLETE THIS BOX:

DESCRIPTION OF ORIGINAL NOTES TENDERED
If blank, please print Name and	Original Notes Tendered
Address of Registered Holder	(Attach Additional List of Notes)
			Principal Amount of
		Principal	Original Notes
	Certificate	Amount of	Tendered
	Number(s)*	Original Notes	(If Less Than All)**
	Total Amount Tendered:
* Need not be completed by book-entry holders.
** Original Notes may be tendered in whole or in part in denominations of $1,000 and integral multiples thereof. Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Original Notes held by such holder indicated in the corresponding column to the left of this column

BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY:

o CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING:

       Name of Tendering Institution: 

       DTC Account No.  Transaction Code No. 

o CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:

       Name(s) of Registered Holder(s): 

       Window Ticket Number (if any): 

       Date of Execution of Notice of Guaranteed Delivery: 

       Name of Institution which Guaranteed Delivery: 

3

IF GUARANTEED DELIVERY IS TO BE MADE BY BOOK-ENTRY TRANSFER:

Name of Tendering Institution:

____________________________________________________________________________

DTC Account No. Transaction Code No.

o CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.

o CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A “PARTICIPATING BROKER-DEALER”) AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.

Name:

Address:

4

Ladies and Gentlemen:

      The undersigned hereby tenders to Ashton Woods USA L.L.C., a Nevada limited liability company, and Ashton Woods Finance Co., a Delaware corporation (collectively, the “Issuers”), the above described aggregate principal amount of the Issuers’ 9.5% Senior Subordinated Notes due 2015, which are not registered under the Securities Act of 1933 (the “Original Notes”), in exchange for a like aggregate principal amount of the Issuers’ 9.5% Senior Subordinated Notes due 2015, which have been registered under the Securities Act of 1933 (the “New Notes”), upon the terms and subject to the conditions set forth in the Prospectus, dated                    , 2006 (as the same may be amended or supplemented from time to time, the “Prospectus”), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the “Exchange Offer”).

      Subject to and effective upon the acceptance for exchange of all or any portion of the Original Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby tenders, exchanges, sells, assigns and transfers to or upon the order of the Issuers all right, title and interest in and to such Original Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Issuers in connection with the Exchange Offer) with respect to the tendered Original Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates for Original Notes to the Issuers together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Issuers, upon receipt by the Exchange Agent, as the undersigned’s agent, of the New Notes to be issued in exchange for such Original Notes, (ii) present Certificates for such Original Notes for transfer, and to transfer the Original Notes on the books of the Issuers and (iii) receive for the account of the Issuers all benefits and otherwise exercise all rights of beneficial ownership of such Original Notes, all in accordance with the terms and conditions of the Exchange Offer.

      THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE ORIGINAL NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE ISSUERS WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE ORIGINAL NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE ISSUERS OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE ORIGINAL NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT, DATED AS OF SEPTEMBER 21, 2005 (THE “REGISTRATION RIGHTS AGREEMENT”), AMONG THE ISSUERS, THE GUARANTORS NAMED THEREIN AND THE INITIAL PURCHASERS NAMED THEREIN, FOR THE BENEFIT OF THE INITIAL PURCHASERS AND THE HOLDERS OF THE ORIGINAL NOTES. THE UNDERSIGNED AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.

      The name(s) and address(es) of the registered holder(s) of the Original Notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the Certificates representing such Original Notes or, in the case of book-entry securities, on the relevant securities position listing. The Certificate number(s) and the Original Notes that the undersigned wishes to tender should be indicated in the appropriate boxes above.

      If any tendered Original Notes are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Original Notes than are tendered or accepted for exchange, Certificates for such nonexchanged or nontendered Original Notes will be returned (or, in the case of Original Notes tendered by book-entry transfer, such Original Notes will be credited to an account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer.

      The undersigned understands that tenders of Original Notes pursuant to any one of the procedures described in “The exchange offer — Exchange Offer Procedures” in the Prospectus and in the instructions hereto will, upon the Issuers’ acceptance for exchange of such tendered Original Notes, constitute a binding agreement between the

5

undersigned and the Issuers upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Issuers may not be required to accept for exchange any of the Original Notes tendered hereby.

      Unless otherwise indicated herein in the box entitled “Special Issuance Instructions” below, the undersigned hereby directs that the New Notes be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Original Notes, that such New Notes be credited to the account indicated above maintained at DTC. If applicable, substitute Certificates representing Original Notes not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Original Notes, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under “Special Delivery Instructions,” please deliver New Notes to the undersigned at the address shown below the undersigned’s signature.

      By tendering Original Notes and executing this Letter of Transmittal, the undersigned hereby represents and agrees that (i) any New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of its business, (ii) the undersigned has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act of 1933) of New Notes to be received in the Exchange Offer in violation of the provisions of the Securities Act of 1933, (iii) the undersigned is not an “affiliate” (as defined in Rule 405 under the Securities Act of 1933) of the Issuers or any of their subsidiaries, or, if the undersigned is an affiliate, the undersigned will comply with the registration and prospectus delivery requirements of the Securities Act of 1933 to the extent applicable, (iv) if the undersigned is not a broker-dealer, the undersigned is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act of 1933) of such New Notes and (v) if the undersigned is a broker-dealer that received New Notes for its own account in the Exchange Offer, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, such broker-dealer will deliver a Prospectus in connection with any resale of such New Notes (provided that, by so acknowledging and by delivering a prospectus, such broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act of 1933). See “The exchange offer  — Terms of the Exchange Offer — Purpose of the exchange offer,” “The exchange offer — Exchange Offer Procedures” and “Plan of distribution” in the Prospectus.

      The Issuers have agreed that, subject to the provisions of the Registration Rights Agreement, the Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Original Notes, where such Original Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making activities or other trading activities, for a period ending 180 days of the Prospectus (subject to extension under certain limited circumstances described in the Prospectus) or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. However, a Participating Broker-Dealer who intends to use the Prospectus in connection with the resale of New Notes received in exchange for Original Notes pursuant to the Exchange Offer must notify the Issuers, or cause the Issuers to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided herein for that purpose or may be delivered to the Exchange Agent at one of the addresses set forth in the Prospectus under “The exchange offer — Exchange Agent.” In that regard, each Participating Broker-Dealer, by tendering such Original Notes and executing this Letter of Transmittal, agrees that, upon receipt of notice from the Issuers of the occurrence of (i) the request of the Securities and Exchange Commission for amendments or supplements to the Registration Statement or the Prospectus included therein, (ii) the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (iii) the receipt by the Issuers or their legal counsel of any notification with respect to the suspension of the qualification of the New Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose or (iv) the happening of any event that requires the Issuers to make changes in the Registration Statement or the Prospectus in order that the Registration Statement or the Prospectus does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made), not misleading, such Participating Broker-Dealer shall suspend the use of such Prospectus, until the Issuers have promptly prepared and filed a post-effective amendment to the Registration Statement or a supplement to the related Prospectus and any other document required so that, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be

6

stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and has furnished an amended or supplemented Prospectus to the Participating Broker-Dealer or the Issuers have given notice that the sale of the New Notes may be resumed, as the case may be.

      If the Issuers give such notice to suspend the sale of the New Notes, it shall extend the 180-day period referred to above during which Participating Broker-Dealers are entitled to use the Prospectus in connection with the resale of New Notes by the number of days in the period from and including the date of the giving of such notice to and including the date when the Issuers shall have made available to Participating Broker-Dealers copies of the supplemented or amended Prospectus necessary to resume resales of the New Notes or to and including the date on which the Issuers have given notice that the use of the applicable Prospectus may be resumed, as the case may be.

      Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from September 21, 2005. Such interest will be paid with the first interest payment on the New Notes on April 1, 2006.

      All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable.

7

HOLDER(S) SIGN HERE

(SEE INSTRUCTIONS 1, 2, 5 AND 6)

(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)

(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)

      Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) for the Original Notes hereby tendered or on a security position listing, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith (including such opinions of counsel, certifications and other information as may be required by the Issuers or the Trustee for the Original Notes to comply with the restrictions on transfer applicable to the Original Notes). If the signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary capacity or representative capacity, please set forth the signer’s full title. See Instruction 5.

(SIGNATURE(S) OF HOLDER(S))

Signature(s):  Dated:  , 2005

Name(s): 

(Please Print)

Address: 

(Include Zip Code)

Area Code and Telephone Number: 

TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)

GUARANTEE OF SIGNATURE(S)

(SEE INSTRUCTIONS 2 AND 5)

Authorized Signature: 

Name: 

(Please Print)

Date: ________________________________________________________________________________, 2005

Capacity or Title: 

Name of Firm: 

Address: 

(Include Zip Code)

Area Code and Telephone Number: 

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SPECIAL ISSUANCE INSTRUCTIONS

(See Instructions 1, 5 and 6)

To be completed ONLY if the New Notes are to be issued in the name of someone other than the registered holder of the Original Notes whose name(s) appear(s) above:

Issue New Notes to:

Name: 

(Please Print)

Address: 

(Include Zip Code)

(Taxpayer Identification or Social Security No.)

SPECIAL DELIVERY INSTRUCTIONS

(See Instructions 1, 5 and 6)

To be completed ONLY if the New Notes are to be delivered to someone other than the registered holder of the Original Notes whose name(s) appear(s) above, or to such registered holder(s) at an address other than that shown above.

Mail New Notes to:

Name: 

(Please Print)

Address: 

(Include Zip Code)

(Taxpayer Identification or Social Security No.)

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INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER

      1. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery Procedures. This Letter of Transmittal is to be completed either if (a) Certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in “The exchange offer — Exchange Offer Procedures” in the Prospectus. Certificates, or timely confirmation of a book-entry transfer of such Original Notes into the Exchange Agent’s account at DTC, as well as a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent’s Message in the case of a book-entry delivery, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Original Notes may be tendered in whole or in part in the principal amount of $1,000 and integral multiples thereof.

      Holders who wish to tender their Original Notes and (i) whose Certificate of such Original Notes are not immediately available or (ii) who cannot deliver their Original Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date or (iii) who cannot complete the procedures for delivery by book-entry transfer prior to 5:00 p.m., New York City time, on the Expiration Date, must tender their Original Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in “The exchange offer — Guaranteed Delivery Procedures” in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Guarantor Institution (as defined below); (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Issuers, must be received by the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date; and (iii) the Certificates (or a book-entry confirmation (as defined in the Prospectus)) representing all tendered Original Notes, in proper form for transfer, together with a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent’s Message in the case of a book-entry delivery, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three business days after the Expiration Date, all as provided in “The exchange offer  — Guaranteed Delivery Procedures” in the Prospectus.

      The Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail or transmitted by facsimile to the Exchange Agent, and must include a guarantee by an Eligible Guarantor Institution in the form set forth in such Notice. For Original Notes to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration Date. As used herein and in the Prospectus, “Eligible Guarantor Institution” means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as “an eligible guarantor institution,” including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association.

      THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT OR HAND DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.

      The Issuers will not accept any alternative, conditional or contingent tenders. Each tendering holder, by executing a Letter of Transmittal (or manually signed facsimile thereof), waives any right to receive any notice of the acceptance of such tender.

10

      2. Guarantee of Signatures. No signature guarantee on this Letter of Transmittal is required if:

      (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on the relevant security position listing as the owner of the Original Notes) of Original Notes tendered herewith, unless such holder(s) has completed either the box entitled “Special Issuance Instructions” or the box entitled “Special Delivery Instructions” above, or

      (ii) such Original Notes are tendered for the account of a firm that is an Eligible Guarantor Institution.

      In all other cases, an Eligible Guarantor Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5.

      3. Inadequate Space. If the space provided in the box captioned “Description of Original Notes” is inadequate, the Certificate number(s) and/or the aggregate principal amount of Original Notes and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal.

      4. Partial Tenders and Withdrawal Rights. Tenders of Original Notes will be accepted only in the principal amount of $1,000 and integral multiples thereof. If less than all the Original Notes evidenced by any Certificate submitted are to be tendered, fill in the principal amount of Original Notes which are to be tendered in the box entitled “Principal Amount of Original Notes Tendered (if less than all).” In such case, new Certificate(s) for the remainder of the Original Notes that were evidenced by your old Certificate(s) will only be sent to the holder of the Original Notes, or such other party as you identify in the box captioned “Special Delivery Instructions” promptly after the Expiration Date. All Original Notes represented by Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated.

      Except as otherwise provided herein, tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. In order for a withdrawal to be effective on or prior to that time, a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth above or in the Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Original Notes to be withdrawn, the aggregate principal amount of Original Notes to be withdrawn, and (if Certificates for Original Notes have been tendered) the name of the registered holder of the Original Notes as set forth on the Certificate for the Original Notes, if different from that of the person who tendered such Original Notes. If Certificates for the Original Notes have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Certificates for the Original Notes, the tendering holder must submit the serial numbers shown on the particular Certificates for the Original Notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Guarantor Institution, except in the case of Original Notes tendered for the account of an Eligible Guarantor Institution. If Original Notes have been tendered pursuant to the procedures for delivery by book-entry transfer set forth in “The exchange offer — Exchange Offer Procedures,” in the Prospectus, the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Original Notes, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Original Notes may not be rescinded. Original Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time prior to 5:00 p.m., New York City time, on the Expiration Date by following any of the procedures described in the Prospectus under “The exchange offer — Exchange Offer Procedures.”

      All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Issuers, in their sole discretion, whose determination shall be final and binding on all parties. Neither the Issuers, any affiliates or assigns of the Issuers, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Original Notes which have been tendered but which are withdrawn will be returned to the holder thereof without cost to such holder promptly after withdrawal.

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      5. Signatures on Letter of Transmittal, Assignments and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Original Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) or, in the case of book-entry securities, on the relevant security position listing) without alteration, enlargement or any change whatsoever.

      If any of the Original Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal.

      If any tendered Original Notes are registered in different name(s) on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or manually signed facsimiles thereof) as there are different registrations of Certificates.

      If this Letter of Transmittal or any Certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Issuers, in their sole discretion, of such persons’ authority to so act.

      When this Letter of Transmittal is signed by the registered owner(s) of the Original Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or separate bond power(s) are required unless New Notes are to be issued in the name of a person other than the registered holder(s). Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an Eligible Guarantor Institution.

      If this Letter of Transmittal is signed by a person other than the registered owner(s) of the Original Notes listed, the Certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the registered owner(s) appear(s) on the Certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Issuers or the Trustee for the Original Notes may require in accordance with the restrictions on transfer applicable to the Original Notes. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Guarantor Institution.

      6. Special Issuance and Delivery Instructions. If New Notes are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if New Notes are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Original Notes not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4.

      7. Irregularities. The Issuers determine, in their sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Original Notes, which determination shall be final and binding on all parties. The Issuers reserve the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Issuers, be unlawful. The Issuers also reserve the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under “The exchange offer  — Conditions” or any conditions or irregularity in any tender of Original Notes of any particular holder, and if the Issuers waive any conditions or irregularity with respect to a particular holder, the Issuers will waive such condition with respect to all other holders. The Issuers’ interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of Original Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Issuers, any affiliates or assigns of the Issuers, the Exchange Agent, nor any other person shall be under any duty to give notification of any irregularities in tenders or incur any liability for failure to give such notification.

      8. Questions, Requests for Assistance and Additional Copies. Questions and requests for assistance may be directed to the Exchange Agent at one of its addresses and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee.

12

      9. 28% Backup Withholding; Substitute Form W-9. Under U.S. Federal income tax law, a U.S. holder whose tendered Original Notes are accepted for exchange is required to provide the Exchange Agent with such U.S. holder’s correct taxpayer identification number (“TIN”) on Substitute Form W-9 below. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service (the “IRS”) may subject the U.S. holder or other payee to a $50 penalty. In addition, payments to such U.S. holders or other payees with respect to Original Notes exchanged pursuant to the Exchange Offer may be subject to a 28% (in 2005) backup withholding.

      The box in Part 2 of the Substitute Form W-9 may be checked if the tendering U.S. holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 2 is checked, the U.S. holder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 2 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 28% of all payments made prior to the time a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W-9. If the U.S. holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the U.S. holder and no further amounts shall be retained or withheld from payments made to the U.S. holder thereafter. If, however, the U.S. holder has not provided the Exchange Agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 28% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided.

      The U.S. holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered owner of the Original Notes or of the last transferee appearing on the transfers attached to, or endorsed on, the Original Notes. If the Original Notes are registered in more than one name or are not in the name of the actual owner, consult the enclosed “Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9” for additional guidance on which number to report.

      Certain U.S. holders (including, (1) an organization exempt from tax under Section 501(a), any IRA, or a custodial account under Section 403(b)(7) if the account satisfies the requirements of Section 401(f)(2); (2) the United States or any of its agencies or instrumentalities; (3) a state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities; (4) a foreign government or any of its political subdivisions, agencies or instrumentalities; (5) an international organization or any of its agencies or instrumentalities; (6) a corporation; (7) a foreign central bank of issue; (8) a dealer in securities or commodities required to register in the U.S., the District of Columbia or a possession of the U.S.; (9) a futures commission merchant registered with the Commodity Futures Trading Commission; (10) a REIT; (11) an entity registered at all times during the tax year under the Investment Company Act of 1940; (12) a common trust fund operated by a bank under Section 584(a); (13) a financial institution; (14) a middleman known in the investment community as a nominee or custodian; or (15) a trust exempt from tax under Section 664 or described in Section 4947) may not be subject to these backup withholding and reporting requirements. Such U.S. holders should nevertheless complete the attached Substitute Form W-9 below, and check the box “Exempt from backup withholding” provided on Substitute Form W-9, to avoid possible erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting a properly completed IRS Form W-8 BEN, signed under penalties of perjury, attesting to that U.S. holder’s exempt status.

      Backup withholding is not an additional U.S. Federal income tax. Rather, the U.S. Federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained.

      10. Lost, Destroyed or Stolen Certificates. If any Certificate(s) representing Original Notes has been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Certificate(s) have been followed.

13

      11. Security Transfer Taxes. Holders who tender their Original Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Original Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Original Notes in connection with the Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.

      IMPORTANT: THIS LETTER OF TRANSMITTAL (OR MANUALLY SIGNED FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.

14

TO BE COMPLETED BY ALL TENDERING NOTEHOLDERS

(SEE INSTRUCTION 9)

PAYERS NAME: U.S. BANK, NATIONAL ASSOCIATION

  Name:

  Business name, if different from above:

  Check appropriate box: o Individual/sole proprietoro  Corporation
o  Partnershipo  Other

                           o Exempt from backup withholding

  Address (number, street and apt. or suite no.):

  City, state and ZIP code:

  List account number(s) here (optional):

SUBSTITUTE Form W-9	Part 1 — PLEASE PROVIDE YOUR TIN AT THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW	Social Security Number or Employer Identification Number
Department of the Treasury,	Part 2 — Awaiting TIN o

Internal Revenue Service	CERTIFICATION — UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Payor’s Request for Taxpayer	(1) the number on this form is my correct Taxpayer Identification Number (or that I am waiting for a number to be issued to me).
Identification
Number (TIN) and Certification	(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, (b) I have not been notified by the Internal Revenue Service (the “IRS”) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to withholding.
	(3) I am a U.S. person (including a U.S. resident alien).
	CERTIFICATION INSTRUCTIONS — YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDER-REPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING, YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT ITEM (2).

Signature  Date 

NOTE:  FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 28% (in 2005) OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

15

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

          I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (1) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administrative Office or (2) I intend to mail or deliver an application in the near future. If I do not provide a Taxpayer Identification Number by the time of payment, 28% of all payments made to me on account of the New Notes shall be retained until I provide a Taxpayer Identification Number to the Exchange Agent and that, if I do not provide my Taxpayer Identification Number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 28% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number:

Signature Date

16 CORRESP 19 filename19.txt Atlanta Beijing Brussels Hong Kong London Los Angeles Milan New York Orange County Palo Alto Paris San Diego San Francisco Shanghai Stamford Tokyo Washington, DC (404) 815-2287 elizabethnoe@paulhastings.com January 31, 2006 58338.00002 Pamela A. Long and Andrew Schoeffler Division of Corporate Finance Securities and Exchange Commission 100 F Street, NE Mail Stop 7010 Washington, DC 20549-7010 Re: Ashton Woods USA L.L.C. Registration Statement on Form S-4 Filed November 23, 2005 File No.: 333-129906 and 333-129906-01 through 21 Dear Ms. Long and Mr. Schoeffler: On behalf of our clients, Ashton Woods USA L.L.C., a Nevada limited liability company (the "Issuer"), Ashton Woods Finance Co., a Delaware corporation (the "Co-Issuer" and together with the Issuer, the "Issuers") and the subsidiary guarantors referred to in the Form S-4 referenced above (each, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors"), we are submitting the Issuers' response to Staff comments conveyed in the Staff comment letter dated December 20, 2005. This letter is submitted along with Amendment No. 1 to the Registration Statement on Form S-4 of the Issuers (the "S-4") for the registration under the Securities Act of 1933, as amended (the "Securities Act") of $125,000,000 aggregate principal amount of the Issuers' 9.5% senior subordinated notes due 2015 (the "New Notes") and guarantees thereof by the Subsidiary Guarantors (the "New Guarantees") issuable in exchange for the Issuers' existing 9.5% senior subordinated notes due 2015 and the related guarantees thereof by the Subsidiary Guarantors, which were offered and sold in a transaction exempt from registration under the Securities Act. Amendment No. 1 to the S-4 was transmitted for filing to the Commission via Edgar on the date hereof. Please note that we have been advised by the Issuers and the Subsidiary Guarantors that (i) the Issuers are registering the New Notes, and the Subsidiary Guarantors are registering the New Guarantees in reliance on the Staff positions enunciated in Exxon Capital Holdings Corp. (avail. April 13, 1989), Morgan Stanley & Co. (avail. June 5, 1991) and Shearman & Sterling (avail. July 2, 1993), (ii) none of the Issuers, any Subsidiary Guarantor nor any affiliate of the Issuers or any Subsidiary Guarantor has entered into any agreement or understanding with any person to distribute the New Notes and the New Guarantees thereof and (iii) to the best of each Issuer's and each Subsidiary Guarantor's information and belief, each person participating in the Exchange Offer is January 31, 2006 Page 2 acquiring the New Notes and the New Guarantees thereof in its ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the New Notes and the New Guarantees thereof to be received in the Exchange Offer. In this regard, we have been advised by the Issuers and the Subsidiary Guarantors that they will make each person participating in the Exchange Offer aware (through the Prospectus included in the S-4 (the "Prospectus")) that if such person is participating in the Exchange Offer for the purpose of distributing the New Notes and the New Guarantees thereof to be acquired in the Exchange Offer, such person (i) could not rely on the Staff position enunciated in Exxon Capital Holdings Corporation or interpretive letters to similar effect and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. The Issuers and the Subsidiary Guarantors acknowledge that such a secondary resale transaction should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K. We have also been advised by the Issuers and the Subsidiary Guarantors that they (i) will make each person participating in the Exchange Offer aware (through the Prospectus) that any broker-dealer who holds Original Notes and Original Guarantees acquired for its own account as a result of market-making activities or other trading activities, and who receives New Notes and New Guarantees in exchange for such Original Notes and Original Guarantees pursuant to the Exchange Offer, may be a statutory underwriter and must deliver a prospectus meeting the requirements of the Securities Act, which may be the Prospectus so long as it contains a plan of distribution with respect to such resale transactions (such plan of distribution need not name the broker-dealer or disclose the amount of New Notes held by the broker-dealer), in connection with any resale of such New Notes and New Guarantees and (ii) will include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer the following additional provision if the exchange offeree is a broker-dealer holding Original Notes acquired for its own account as a result of market-making activities or other trading activities, an acknowledgement that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of New Notes and New Guarantees received in respect of such Original Notes and Original Guarantees pursuant to the Exchange Offer. The transmittal letter or similar documentation may also include a statement to the effect that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. With respect to the Staff comment letter, the individual responses of the Issuers to each of the Staff's comments are set forth below on the Issuers' behalf, together with the related comments. The headings and numbers of the responses coincide with the headings and comment numbers set forth in the comment letter. Please note that the S-4 has been updated to include financial statements and related disclosure for the Issuer's most recently completed fiscal quarter ended November 30, 2005. Further, as a result of the revisions made to the S-4, the page numbers the Staff referred to in its comment letter may no longer correspond to the page numbers of the S-4 filed herewith. The page January 31, 2006 Page 3 numbers in the Issuer's responses below correspond to the page numbers in the S-4 filed herewith. General 1. If you intend to rely on the position the staff took in Exxon Capital Holdings Corporation (May 13, 1988) and subsequent related no-action letters, please provide us with a supplemental letter indicating that you are registering your exchange offer in reliance on our position contained in these letters and also include the representations contained in Morgan Stanley & Co., Inc. (June 5, 1991) and Shearman & Sterling (July 2, 1993). Response: See the representations provided above. 2. Please disclose the information required by Item 19(a)(4) of Form S-4. Response: Page 30 of the prospectus has been revised to include a statement that no affiliate of the Issuers or the Subsidiary Guarantors has a direct or indirect interest in the Exchange Offer. 3. To the extent additional subsidiaries of the company come into existence and are made guarantors on the registered notes prior to the expiration of the offering period, we assume you will update the facing page, the signature pages, and financial statements to reflect the additional guarantors. Response: The table of additional registrants and signature pages in Amendment No. 1 includes a new subsidiary of the Issuer, Ashton Woods Transportation, LLC ("Ashton Transportation"), which became a guarantor of the registered notes after November 23, 2005, the date the initial Registration Statement on Form S-4 was filed. The most recent financial statements in the S-4 are for the fiscal quarter ended November 30, 2005. Since Ashton Transportation became a guarantor of the registered notes after November 30, 2005, the financial statements in the S-4 do not include Ashton Transportation. The Issuers have advised us that Ashton Transportation was formed solely purpose of acquiring an aircraft, which was acquired in December 2005, and that prior to and as of November 30, 2005, it did not have any assets or liabilities. Furthermore, the Issuers have also advised us that Ashton Transportation will be included in its financial statements for periods subsequent to November 30, 2005. The Issuers have also advised us that they will update the facing page and the signature pages, as requested, to add any additional subsidiaries that come into existence and are made guarantors of the registered notes prior to the expiration of the offering period. Furthermore, the Issuers have advised us that they will update the financial statements to include any additional subsidiaries that come January 31, 2006 Page 4 into existence and are made guarantors of the registered notes prior to the expiration of the offering period, provided that such additional subsidiaries became guarantors of the registered notes during the periods covered by the financial statements included in the S-4 at that time. Prospectus Summary, page 1 4. Please delete the last sentence of the first introductory paragraph since it is clear from the context. In addition, please relocate the second introductory paragraph to a more appropriate location in your prospectus. Response: The last sentence of the first introductory paragraph has been deleted from the S-4. The second introductory paragraph has been moved, and it now appears after the Issuer's address and phone number on the bottom of page 1. Please note that in order for the Issuers to refer to the 2004 and 2005 J.D. Power Awards for Highest in Customer Satisfaction with New Homebuilders in Atlanta, the independent company that conducted the surveys, J.D. Power and Associates, required the Issuers to include the information regarding the parameters of the surveys in the prospectus in proximity to the initial statements regarding the awards. Therefore, we believe it is appropriate to include this information in the prospectus summary. 5. Please substantially revise the disclosure under the heading "Business Strategy" as this disclosure merely repeats entire portions of your Business section. Your summary should be limited to providing a brief overview of the most important aspects of your business. If you believe this disclosure is necessary, reduce the disclosure to a bullet point presentation, with one sentence per bullet point. Response: The disclosure under the heading "Business Strategy" on page 1, has been revised to a bullet point presentation to reduce repetition. Material United States Federal Income Tax Consequences, page 6 6. We note the disclosure that your exchange offer "will" not result in a taxable event. Please reconcile with the disclosure in the second sentence of the first paragraph under the heading "Exchange Offer" on page 115 that your exchange offer "should" not result in a taxable event. Response: The statement on page 120 has been revised to indicate that the exchange offer "will" not result in a taxable event. Risk Factors, page 13 January 31, 2006 Page 5 Our home sales and operating revenues could decline due to macroencomic..., page 13 7. Item 503(c) of Regulation S-K states that issuers should not "present risk factors that could apply to any issuer or any offering." It appears that the risk described under this subheading could apply to nearly any issuer. Please revise to clearly explain how this risk specifically applies to you. Please also comply with this comment in risk factors seven, 11, 16, and 17. Response: Risk factors one, seven, 11 and 16 have been revised to explain how the risks apply to the Issuer's business. Risk factor 17 has been deleted in that the risk identified does not apply to the Issuer in a manner different from any issuer. Our operating results are variable, which may cause the value of the notes..., page 13 8. Please provide examples to illustrate the risk described under this subheading. Please also comply with this comment in risk factors three and 12. Response: Risk factors two, three and 12 have been revised to provide specific examples of the way these risks could impact the Issuer's business. We may incur additional operating expenses due to compliance..., page 15 9. Please quantify the risks described under this subheading. Please also comply with this comment in risk factors nine, 10, 13 and 14. Response: In order to quantify the risks described in risk factors eight, nine, 10, 13 and 14, the Issuer would need to make a number of assumptions. However, the assumptions that the Issuer would be required to make in order to quantify the risk would be based on speculation, rather than good faith estimates based on the experience of the Issuer's management. For example, in order to quantify the risks associated with fines and penalties for violations of environmental laws, the Issuer would be required to assume, among other things, what the potential violation might be; whether the fines and penalties would be imposed by local, state or federal authorities or some combination of thereof; and the fines and penalties that local, state and federal law impose for the assumed violation. Also, for example, in order to quantify the effect of higher insurance premiums as a result of construction and product defect liability claims, the Issuer would be required to assume what defect or defects caused the increase in premiums; the dollar amount of its exposure as a result of the assumed defect or defects; and how its insurers would calculate the increase in premiums as a result of the defect or defects. Because such quantifications would be based purely on speculation, we believe that providing them would not be useful to investors and could be January 31, 2006 Page 6 misleading. Consequently, the Issuer the does not believe that it is appropriate to amend risk factors eight, nine, 10, 13 and 14 in order to quantify the risks described therein. Although risk factors eight, nine, 10, 13 and 14 have not been revised to include a quantifications of the risks, where appropriate they have been revised to more particularly describe the impact each of these risks could have on the Issuer. We may be unable to generate sufficient cash to service our debt..., page 18 10. Please quantify your annual debt service costs and the impact of an interest rate change on these costs. For example, what would be the impact of a one percent increase in your interest rates? Response: Page 17 has been revised to include the Issuer's annual debt service costs for both its fixed rate and variable rate indebtedness. The revised disclosure also discusses the impact a 1% increase in interest rate would have on the Issuer's variable rate indebtedness. The Exchange Offer, page 23 11. Please apply the comments on this section set forth below to the section entitled "The Exchange Offer" beginning on page 4 and to Exhibit 99.1, as appropriate. Response: Each of the responses noted below resulting in changes to the Exchange Offer section of the Prospectus will also be reflected in Exhibit 99.1 to the extent applicable. Expiration Date; Extensions; Amendment, page 25 12. We note that you will announce the extension of the offer by making a public announcement prior to 5:00 p.m. on the next business day after the previously scheduled expiration date. Please revise the disclosure to comply with Rule 14e-1(d), which requires you to make the announcement prior to 9:00 a.m. Response: The disclosure on page 24 has been revised to clarify that any announcement regarding an extension of the offer will be made prior to 9:00 a.m. on the next business day after the previously scheduled expiration date. 13. We note that you reserve the right to "delay accepting any original notes." Please clarify in what circumstances you will delay acceptance. For example, if you are referring to the right to delay acceptance only due to any extension of the exchange offer, so state. January 31, 2006 Page 7 Response: The disclosure is intended to indicate that a delay in accepting any original notes will occur in connection with an extension of the exchange offer. To clarify this point, we have added an "and" to connect the concepts of delaying acceptance and of extending the exchange offer in the referenced bullet point on page 24. 14. We note the disclosure in the second sentence of the first paragraph on page 26. Please revise here and, as appropriate, elsewhere in your prospectus to indicate that in the event of a material change in your exchange offer, including the waiver of a material condition, you will extend your exchange offer period, if necessary, so that at least five business days remain in your exchange offer following notice of the material change. Response: The last sentence of the first paragraph on page 25 has been revised to read as follows: "In the event of a material change in the Exchange Offer, including the waiver of any material condition by the Issuers, we will extend the Exchange Offer, if necessary, so that at least five business days remain prior to the expiration date following the notice of the material change." We have also made similar revisions on page 29. Exchange Offer Procedures, page 26 15. We note the disclosure in the last sentence of the fifth full paragraph on page 27 that the exchange agent will return certain original notes "as soon as practicable following the expiration date." Please reconcile with the disclosure in the third sentence of the last paragraph under the heading "Withdrawal of Tenders" on page 29. In addition, Rule 14e-1(c) under the Exchange Act requires that you return the original notes "promptly" upon expiration or termination of your exchange offer. Please revise here and, as appropriate, elsewhere in your prospectus accordingly. Response: The sentence referenced on page 26 (formerly page 27) refers to the situation where original notes have not been properly tendered and thus are being returned to the holder. Generally, such return will be without cost to the holder, however, the Issuers may provide differently in a letter of transmittal requiring the holder to pay for the return of notes not properly tendered. The sentence on page 28 (formerly page 29) refers to a different situation where notes have been properly tendered, but are not accepted for exchange by the Issuers as a result of withdrawal, rejection of tender or termination of the exchange offer. The Issuers do not intend to require payment by the holders for the return of these notes in any circumstances. Because of these differences, the disclosure cannot be fully reconciled. The language on page 26 has been revised to make clear that the improperly tendered notes will be returned "promptly" as opposed to "as soon as practicable". January 31, 2006 Page 8 Conditions, page 29 16. Please disclose the basis upon which you will determine whether any condition has been satisfied. Please note that you must provide an objective standard for determining whether a condition has been satisfied. In this regard, we note that you currently use a "reasonable discretion" standard. Response: It appears that the language referenced did not correctly convey the information intended to be provided to the reader. Each of the conditions referenced is an objective condition as to which the Issuers are not able to use discretion in determining existence of the condition. The condition will either objectively exist or not exist based on factors outside of the Issuers' control. The discretion intended to be referred to is the Issuers' decision whether to waive the condition or take one of the other actions enumerated. Therefore, the lead-in language on page 29 has been revised to read as follows: "If any of the foregoing conditions exist, we may, in our reasonable discretion:" Use of proceeds, page 32 17. Please provide the information specified in Instruction 4 to Item 504. Response: As is noted under Use of Proceeds, the S-4 relates to an exchange offer of new securities for outstanding securities to satisfy obligations under a registration rights agreement entered into by the Issuers in connection with the issuance and sale of the original notes. The Issuers will not receive any cash proceeds from the issuance of the new notes. Therefore, there are no proceeds being used to repay indebtedness out of this offering, and we respectfully submit that the information described in Instruction 4 of the Item 504 is not applicable. The Issuers have referenced in the second paragraph under "Use of Proceeds" what the use of proceeds was with respect to the original issuance of the notes which occurred prior to this exchange offer. The information required by Instruction 4 of Item 504 was provided to investors when they were purchased in the prior private placement. Summary consolidated financial information and operating data, page 10 and Selected historical consolidated financial and operating data, page 34 18. Since you present a non-GAAP performance measure that excludes recurring expenses, please revise your current presentation to fully comply with our response to Question 8 of "Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures." It appears to us that your current presentation does not address the material limitations associated with the non-GAAP measure you present or the manner in which you compensate for these limitations. January 31, 2006 Page 9 Response: Additional disclosure regarding the limitations of EBITDA as a measure of performance has been added to note (2) on pages 9 and 35. Management's Discussion and Analysis of Financial Condition ..., page 37 Overview, page 37 19. Please expand your overview section to discuss the impact of raw material costs and your significant backlog on the financial condition and results of operations of your company. Response: Additional discussion has been added to the Overview section on page 37 to discuss the impact of raw material costs and the Issuer's backlog on the Issuer's financial condition and results of operations. 20. We note the disclosure in the second bullet point of each of the fourth, fifth and seventh paragraphs regarding the amount of your backlog. Please balance your disclosure by discussing the 15 to 20 percent of the backlog that you expect will be cancelled. We note the disclosure in the seventh full paragraph on page 42. Please also indicate what portion of the backlog you do not reasonably expect to fill in the current fiscal year. Response: After reviewing the Staff's comment above, the Issuer believes that disclosure regarding the cancellation of homes in backlog may have been confusing. The disclosure regarding backlog has been revised to clarify that backlog represents the number and value of new sale orders net of any cancellations that may have occurred during a reporting period. The Issuer has advised us that historically they have experienced a cancellation rate of 15%-20% of the gross new orders recorded during a reporting period, rather than a cancellation rate of 15%-20% of the homes in backlog. Pages 36, 42 and 44 have been updated to clarify this point. Furthermore, page 36 has been revised to include a statement that the Issuer believes that 80%-85% of its backlog as of November 30, 2005 will be sold during the current fiscal year. The Issuer believes that providing the disclosure regarding percentage of its backlog that will close during the current fiscal year, rather than the percentage of backlog that will not close during the fiscal year, is consistent with Item 101(c)(1)(viii) of Regulation S-K. 21. We note the disclosure in the third sentence of the sixth paragraph regarding the delays in receiving government approvals. Please disclose the reasons why you have experienced these delays. January 31, 2006 Page 10 Response: The disclosure in the third sentence of the sixth paragraph on page 37 regarding delays in receiving government approvals has been supplemented to explain the reasons for these delays. 22. We note the significant impact that land sales have had on your results of operations. Please revise MD&A to address the factors that you consider in determining if and when to sell land and address the extent to which you believe future land sales will impact your operating results. Response: Page 36 of the S-4 has been revised to explain the factors that the Issuer considers in determining if and when to sell land and the anticipated impact that future land sales will have on the Issuer's operating results. Results of Operations, page 38 23. Where there is more than one business reason for a change in a line item, please quantify the incremental impact of each individual business reason discussed in the overall change in the line item. For example, you disclose three reasons for the increase in general and administrative expenses for the period ended August 31, 2005 as compared to the period ended August 31, 2004, but you do not state the relative impact of each reason. Response: The "Management's Discussion and Analysis" for the period ended August 31, 2005 has been replaced with the "Management's Discussion and Analysis" for the three- and six-month periods ended November 30, 2005. Therefore the specific disclosures referred to in the Staff's comment have been deleted. However, we understand that the comment applies to the Issuer's "Management's Discussion and Analysis" in general. While in certain instances it would be possible to attribute relative impact of a number of reasons causing a change in a financial statement line item, the Issuer does not believe this information is material to the reader and would in fact serve to confuse them. The impact that various elements may have on results of operations will vary from time to time, and thus, the impact in any one period would not be informative as to the impact such item may have in the future. Where a factor is the primary reason for a change in a line item, the Issuer has and will continue to note that it is the primary factor. However, when there are a number of factors that contributed to the change where none is dominant, we submit it is more appropriate to describe the factors without attributing relative significance. Three Months Ended August 21, 2005 Compared to Three Months Ended...., page 41 24. Please disclose the reasons why you experienced a decline in the amount of land sales revenues. January 31, 2006 Page 11 Response: For the three month-period ended November 30, 2005, land sales actually increased over the same period during the prior fiscal year. However, for the six-month period ended November 30, 2005 land sales actually decreased slightly over the same period during the prior fiscal year. The revised disclosure on pages 40 and 41 includes an explanation of both the changes. 25. Please explain why homes in Dallas and Houston have lower gross margins than homes in Atlanta, Orlando and Phoenix. Response: Margins are driven by the cost to construct a home compared to the price that the home can receive in the particular market. The housing markets in Dallas and Houston have experienced difficulties recently due to economic and other factors in the Texas region, such as a series of job losses during the past several years in the telecommunications, technology and airline industries, that have adversely affected the ability of homebuilders to sell their homes as quickly as desired and with the gross margins desired. When compared to markets that have experienced employment gains, such as Atlanta, Orlando and Phoenix, the condition of the Dallas and Houston markets has not been as favorable to homebuilders, and as a result, homebuilders in Dallas and Houston have sold fewer homes and have obtained lower gross margins on the homes they have sold in Dallas and Houston. Please note that "Management's Discussion and Analysis" was updated for the period ended November 30, 2005, and as a result of the change in the factors affecting the Issuer's operating results for that period, the reference to lower margins in the Dallas and Houston markets has been deleted. Liquidity and Capital Resources, page 45 26. We note your disclosure in the last sentence of the first paragraph that you plan to finance your operations through the proceeds of the original notes. However, it appears that you used all of those proceeds to repay outstanding indebtedness. In this regard, we note your disclosure under the heading "Use of Proceeds" on page 32. Please revise to clarify your financing sources. In addition, please comply with this comment in third sentence of the first paragraph under the heading "Contractual Obligations" on page 46. Response: The reference in each of these sentences to the proceeds of the notes offering has been deleted. While the notes offering indirectly provided funding as a result of decreasing outstanding debt under the credit facility and making it available to the Issuer for future funding, the Staff is correct that the proceeds of that offering will not directly be used as a financing source and the reference is redundant to the reference to the senior unsecured credit facility. 27. We note the disclosure in the second paragraph. Please explain the reasons why your debt to capitalization ratio has increased. January 31, 2006 Page 12 Response: Page 45 of the S-4 has been updated to explain the increase in the Issuer's debt to capitalization ratio. Table of Contractual Obligations, page 47 28. Please provide an updated tabular disclosure of your contractual obligations that includes the senior subordinated notes and related interest payments. In addition, please explain why you believe excluding obligations of certain entities consolidated under FIN 46R is appropriate. At a minimum, it appears to us that you should quantify and disclose the time periods of these obligations in note (4). It also appears to us that you should quantify and disclose all land purchase options you have entered into and the time periods they are required to be exercised; and all obligations and land purchase options of your equity investments. Response: The table of contractual obligations has been updated to November 30, 2005 so that it includes the indebtedness under the original notes and related interest payments and reflects the use of proceeds from the issuance and sale of the notes. Further, we believe the reference in footnote 4 to the exclusion of obligations of certain FIN 46R consolidated entities was confusing and not completely accurate. The contractual obligations table includes obligations under specific performance lot option purchase agreements. The Issuer is also party to lot option purchase agreements that do not contain specific performance provisions. In those situations, the Issuer's only obligation relates to nonrefundable deposits, letters of credit posted in support of those contracts and any other nonrefundable amounts set forth in the contract. Therefore, the additional purchase price for the land under option is not an obligation of the company but simply is an option for future purchase. In order to clarify the Issuer's potential obligations with respect to all land and lot option purchase agreements, including those with and without specific performance obligations, additional tabular disclosure of obligations under these purchase contracts has been included on pages 48 and 49. Operating Cash Flow, page 45 Investing Cash Flow, page 46 Financing Cash Flow, page 46 29. Please explain the business reasons for each change between periods discussed in these sections. Response: The discussions of operating, investing and financing cash flows on pages 46 and 47 have been revised to include explanations of the business reasons for the changes in such cash flows. January 31, 2006 Page 13 Senior Unsecured Credit Facility, page 46 9.5% Senior Subordinated Notes, page 46 30. It appears that your debt agreements contain certain covenants. Please discuss the impact of these covenants on your operations, including any impact on your financial condition or results of operations. Response: A discussion regarding the covenants contained in the senior unsecured credit facility and the indenture governing the notes has been added on page 47. Please note that the indenture covenants are primarily incurrence covenants and thus do not have as significant an impact as those in the senior unsecured credit facility. This fact is noted in the disclosure included on page 47. Business, page 52 31. Please disclose the information required by Item 101(c)(iii) of Regulation S-K. Response: On page 61, the last paragraph contains a discussion of the sources and availability of raw materials for the Issuer's business. In the homebuilding industry, raw materials, such as lumber, construction supplies, roofing supplies, appliances and other materials for the home construction process, are readily available from numerous sources. As disclosed under "Construction" on pages 61 and 62 of the S-4, the Company enters into agreements with material suppliers after competitive bidding and has numerous suppliers of raw materials and services for its homebuilding business. Because of the general availability of raw materials in the Issuer's industry and the fact that it does not have long-term contractual commitments with any of its suppliers as disclosed, we respectfully submit that additional disclosure regarding raw materials is not necessary. 32. Under an appropriately titled heading, please discuss in reasonable detail the title services that you provide through two joint ventures. In addition, please disclose the percentage of your revenues derived from this business. Finally, please file the joint venture agreements relating to these entities as exhibits to your registration statement. Response: A discussion of the Issuers' title services has been added on page 61 under a heading of "Title Services". The title joint ventures are managed by an unrelated party. The Issuer's ownership position is approximately 49% and is accounted for under the equity method. Consequently, the joint ventures are not included in the computation of the Issuer's revenues. The joint venture agreements relating to the entities providing these title services have been filed as Exhibits 10.9, 10.10 and 10.11 to the S-4. January 31, 2006 Page 14 33. Please describe in reasonable detail the material terms of your home building contracts. For example, what are the rights of the parties with respect to the cancellation of a contract? Response: A description of the material terms of the Issuer's homebuilding contracts has been added on page 61. While the cancellation rights under each contract is driven by the law of the state in which the contract is entered into, a general summary of these rights is also provided. 34. Please disclose the basis for your statements in the first and fourth sentences of the introductory paragraph. Response: The statement regarding the Issuer's status as one of the largest private homebuilders is based both on the number of closings and on revenues. The first sentence in the introductory paragraph on page 54 has been revised to clarify this basis. The same clarification has been made on pages 1 and 36. The information in the fourth sentence regarding the standing of the company's markets is based on data provided by the U.S. Census Bureau. A reference to this entity has also been added in that sentence on page 54, as well as pages 1 and 37. 35. Please identify the nationally recognized survey company referenced in the last sentence of the introductory paragraph. Please also advise us as to whether this survey is generally available to the public, without payment of a subscription or other fees. Has this survey been published in widely circulated media or among members of the industry? If so, please tell us when and where. Response: The nationally recognized survey company referenced in the last sentence of the introductory paragraph is J.D. Power. However, J.D. Power refused to give the Issuer permission to use their name with respect to this particular survey because it is not publically published by J.D. Power. We believe that the Issuer's receipt of these rankings in the customer satisfaction survey is important support for information otherwise provided to investors, and therefore, respectfully submit that it is important to continue to disclose this information, notwithstanding J.D. Power's refusal to allow that their name be used. The Issuers and Subsidiary Guarantors have no relationship with J.D. Power, so the Issuers have modified the language to make it clear that the nationally recognized survey company is not an affiliate. Business Strategy, page 52 Provide Our Customers with Superior Value..., page 52 36. We note your statement that you are "recognized for building homes that offer superior design..." Please disclose the basis for this statement. January 31, 2006 Page 15 Response: The statement regarding the Issuers' recognition for building homes that offer superior design, etc. is based on the fact that the Issuers have received numerous awards for such quality. Therefore, the referenced sentence has been revised to indicate this basis. 37. We note the disclosure in the second sentence of the second paragraph. Please identify the organizations that sponsored the awards and whether you have any affiliation with these sponsors. Response: The awards referenced in this comment are generally awarded by local homebuilder associations. The disclosure on page 54 has been revised to indicate the identity of the various homebuilder associations. The disclosure has also been revised to state that other than the Issuer's or its subsidiaries membership in the sponsoring organizations, the Issuer and its subsidiaries do not have any other affiliations with these organizations. The parenthetical reference to (HBA) or (MAME) was intended to be a reference to these associations; however, based on the Staff's comment it is clear that these references were not apparent. 38. We note the disclosure in the third sentence of the second paragraph regarding the five star rating. Please identify the organization that awards this rating and whether you have any affiliation with this organization. Response: The five star rating for home design in Atlanta was also a J.D. Power award and the reference to J.D. Power in that sentence was intended to modify both awards mentioned. The sentence has been revised to better clarify that this is a J.D. Power award. Customer Financing, page 58 39. Please describe in greater detail the mortgage origination business and the percentage of your revenues derived from this segment of your business. Response: Additional detail regarding the Issuers' mortgage origination business has been included on page 61. The mortgage origination business is conducted through a joint venture with Wells Fargo Mortgage, LLC, an unrelated party, and the earnings of this joint venture are reported using the equity method. Consequently, the joint venture's revenues are not included in the computation of the Issuer's revenue. Rather, under the equity method, the joint venture's earnings are reported on the Issuer's income statement as a component of the line item "Earnings in unconsolidated subsidiaries." 40. Please explain the meaning of the term "mortgage capture rate." January 31, 2006 Page 16 Response: The mortgage capture rate represents the percentage of homes closed by the Issuer where the buyer used the mortgage origination services of Ashton Woods Mortgage, L.L.C. The disclosure in the last sentence under "Customer Financing" on page 61 has been revised to clarify this term. 41. Please file the joint venture agreements relating to Ashton Woods Mortgage, L.L.C. as exhibits to your registration statement. Response: The joint venture agreement relating to Ashton Woods Mortgage, L.L.C. has been filed as Exhibit 10.8 to the S-4. Competition and Market Factors, page 60 42. Please discuss your competition's advantages over you and how this affects your competitive position within your industry. Response: Additional information regarding competitors' advantages over the Issuer and how such advantages affect the Issuer's competitive position has been added on page 63. Government Regulation and Environmental Matters, page 60 43. Please disclose the information required by Item 101(c)(xii) of Regulation S-K. Response: Additional disclosure regarding the effect of compliance with environmental regulations on the Issuers' capital expenditures, earnings and competitive position has been provided on page 63. The Issuers do not have any material estimated capital expenditures for environmental control facilities at this time and thus no such disclosure is included. Legal Proceedings, page 61 44. We note that you refer to the potential impact of contingences on your "financial position" here and in note 8 on page F-21. Please revise your disclosures to address other financial measures, including results of operations and cash flows, or the financial statements as a whole. Please be advised that if you believe a material loss is reasonably possible, you should provide all the disclosures required by SFAS 5 and SAB 5:Y. Response: The disclosure under Legal Proceedings has been revised to indicate that none of the matters will have a "material adverse impact upon our consolidated financial statements as a whole if decided against us." The Issuers do not believe a material loss is reasonably possible as noted in Note 8 to the audited financial statements. January 31, 2006 Page 17 Management, page 62 45. Please disclose the information required by Items 402(g) and (h) of Regulation S-K. See Item 19(a)(7)(ii) of Form S-4. Response: Directors do not receive any compensation from the Issuers for their services as directors. A statement to this effect has been added to the management section. With respect to the information required by Items 402, at the time of filing the original S-4, no executive officers of the Issuers were subject to employment agreements or change of control agreements. Subsequent to such filing, an employment agreement was entered into between the Issuer and Tom Krobot on January 30, 2006. Disclosure regarding this agreement has been added beginning on page 66. Audit Committee Financial Expert, page 63 46. Please disclose whether Mr. Joffe is independent, as that term is defined under Item 7(3)(d)(iv) (sic) of Schedule 14A. See Item 401(h) of Regulation S-K. Please also refer to Item 19(a)(7)(i) of Form S-4. Response: Mr. Joffe does not meet the definition of independence under the rules promulgated by either Nasdaq or the New York Stock Exchange. Disclosure regarding the lack of independence has been added on page 67. Please note that because the Issuer does not have any securities listed on a national securities exchange or in an automated inter-dealer quotation system of a nation securities association, it is not required to have independent directors. Compensation Committee Interlocks and Insider Participants, page 63 47. Please revise this section to provide the information required by Item 402(j) of Regulation S-K. Response: Mr. Krobot was added to the board of directors of Ashton Woods USA L.L.C. shortly before the filing of the Form S-4. As the Staff correctly notes, Mr. Krobot's role as an employee of the Issuer should be noted under Compensation Committee Interlocks and Insider Participation, although he did not participate in compensation committee actions during the last fiscal year in that he was not added to the Board of Directors until after the fiscal year end. A statement to this effect has been added on page 68. Further, in accordance to the requirements of Item 402(j), a cross reference to the related party transactions disclosed on pages 71 and 72 has been included on page 68. Certain Relationships and Related Transactions, page 66 January 31, 2006 Page 18 48. Please state whether you believe that the transactions you describe in this section are on terms at least as favorable to your company as you would expect to negotiate with unrelated third parties. Response: The Issuers have informed us that they do believe that the transactions described under "Certain relationships and related transactions" are on terms at least as favorable to the Issuers as would be expected in negotiations with unrelated third parties. A statement to this effect has been added on page 72. 49. Please identify the related party referenced in the fifth paragraph. Response: Page 71 of the S-4 has been revised to identify Larelnor Developments Inc. as the related party discussed in the fifth paragraph. Description of Other Indebtedness, page 68 50. Please delete the second sentence of the introductory paragraph, as the summary should be materially complete. In addition, please clarify that the summary sets forth the material terms of the agreements governing your indebtedness. Response: The second sentence has been deleted as requested. In the first sentence the reference to "principal terms" has been changed to a reference to "material terms". Senior Unsecured Credit Facility, page 68 51. We note the statement in the fourth paragraph that after giving effect to the use of proceeds from the sale of the original notes that you will have no outstanding borrowings under the senior unsecured credit facility. Please reconcile with the capitalization table on page 33, which show there will be $23.7 million outstanding on an as adjusted basis. Response: The statement on page 68 of the original S-4 indicating that there would be no borrowings outstanding was incorrect. The information in the capitalization table on page 33 was correct. However, with the updating of the S-4 to November 30, 2005, the statements referenced in the Staff's comment have been deleted. 52. We note the disclosure in the sixth paragraph. Please disclose whether you are in compliance with these covenants as of the most recent practicable date. Response: Disclosure regarding compliance with covenants has been added on page 74 as requested. January 31, 2006 Page 19 Description of the Notes, page 70 53. Please remove the statement in the second sentence of the second paragraph that your summary is qualified by reference to the indenture, as it is inconsistent with Rule 411 of Regulation C. Response: The referenced sentence has been removed. Certain Covenants, page 75 54. We note the statement that the "indenture will contain, among others, the following covenants." It appears that the indenture is outstanding. Please revise accordingly. Response: The language has been revised accordingly. 55. Please disclose whether you are in compliance with the covenants under the indenture as of the most recent practicable date. Response: The sentence regarding compliance has been added on page 80. Where You Can Find More Information, page 120 56. Please delete the fourth sentence of the first paragraph. The disclosure in your prospectus regarding any contracts, agreements and other documents should be materially complete. Response: The referenced sentence has been deleted. Financial Statements Report of Independent Registered Public Accounting Firm, page F-2 57. Request that your auditors revise their report to include a conformed signature and the city and state where issued as required by Rule 2-02(a) of Regulation S-X. Response: A revised report is included in the S-4. Note 1 -- Summary of Significant Accounting Policies, Presentation, page F-7 58. Please demonstrate to us how you determined that that your homebuilding operations have similar economic characteristics as required by SFAS 131. Response: The Issuer conducts homebuilding operations in seven geographic markets, Atlanta, Dallas, Houston, Orlando, Phoenix, Tampa and Denver. January 31, 2006 Page 20 However, the Issuer has determined that it operates in one reportable segment--homebuilding, in that all of the Issuer's geographic markets sell similar products, have similar building processes, market to similar classes of customers and have similar economic characteristics, as described below. The economic characteristics that drive the sale of the Issuer's homebuilding products and the homebuilding industry generally are the same within each of the Issuer's geographic locations. The primary characteristics are: - employment growth and levels of unemployment; - general health of the overall local economy; - the availability of mortgage financing and the level of mortgage interest rates. The status of each of these economic characteristics in each of the Issuer's geographic locations may vary at a particular point in time (e.g., high unemployment in Dallas versus strong employment in Phoenix); however, the performance of each of them will similarly drive the sales and construction of the Issuer's homes with equal force regardless of location. For example, in geographic markets in which employment growth is strong, the Issuer is able to sell homes more rapidly and to charge a higher sales price. Consequently, the Issuer will obtain better gross margins in that particular market during the period of growth. Conversely, in markets in which the unemployment rate is high and employment growth is not strong, the sale of the Issuer's products will slow, which may in turn require the Issuer to offer incentives to potential homebuyers to buy its products. Those incentives will result in the Issuer earning lower gross margins from the sale of its homes in that market. Geographic market performance of the Issuer's line of products relative to unit sales and profitability fluctuate from year to year due to, among other things, the strength of local management, the location of the specific home sites available for sale, its product design relative to the target buyer profile (i.e., targeting the correct buyer and selecting the correct home size, style, amenity level, finish levels for the targeted buyer), the execution of its marketing and sales efforts, construction quality, weather conditions and the economic condition of the specific geographic market. The level of mortgage interest rates and mortgage underwriting guidelines also have significant effects on the performance of the Issuer's home sales, both new and used, throughout the country. January 31, 2006 Page 21 The Issuer has advised us that in accordance paragraph 17 of SFAS 131, it assessed whether the markets in which it operates exhibit similar long-term economic financial performance. The Issuer has also advised us that it evaluated its average gross margins in all of its markets for each of the past five years and its expectations with respect to future performance, i.e., average gross margins, in all of its markets and has concluded that over a period of years and changes in regional economic cycles, gross margins experienced in all homebuilding markets equalize and produce similar economic results, i.e., gross margins. As such, the Issuer believes that each of its markets has similar economic characteristics and therefore its markets meet the criteria set forth in Paragraph 17 of SFAS 131. Consequently, the Issuer believes that it operates in a single reportable segment -- homebuilding. The Issuer believes that this concluded is consistent with GAAP and with the presentation of other public homebuilders with similar operations, including those that operate in more than one geographic market and under more than one trade name. Note 1 -- Summary of Significant Accounting Policies, Inventory, page F-7 59. Please disclose how you allocate the costs you capitalize in inventory. Response: Page F-7 of the S-4 has been revised to include a description of how the Issuer allocates the costs capitalized to inventory. 60. Based on your disclosed policy related to how you assess inventory for impairments, it is not clear to us if you evaluate homes under construction and land held for sale in accordance with paragraph 34 of SFAS 144. Please revise and clarify your disclosed policy here and under critical accounting policies in MD&A or explain to us how your disclosed policy fully complies with SFAS 144. Response: The Issuer has advised us that it does evaluate finished inventories and land held for sale in accordance with paragraph 34 of SFAS 144. The second paragraph under the heading "Inventory" has been revised to make clear how the various types of real estate inventories are included in the valuations in order to comply with SFAS 144. The discussion of critical accounting policies on page 51 has been revised in order to clarify this point. January 31, 2006 Page 22 Note 1 -- Summary of Significant Accounting Policies, Revenue Recognition, page F-8 61. We note that you design, build and market single-family detached homes, town homes and stacked-flat condominiums. If applicable, please expand your revenue recognition policy for each type of unit you sell. In addition, please address the specific conditions required for you to recognize revenue related to land sales and explain to us if and how any additional land development activities, as disclosed under restricted cash, impact your policy. Response: We have been informed by the Issuer that its revenue recognition policy does not differ by the type of unit sold. Therefore, we submit that the disclosure in the note on page F-8 does not require revision. Revenue is recognized with respect to land sales after all the criteria of paragraph 5 of SFAS 66 have been met. There are no other conditions to the recognition of revenue; therefore, we respectfully submit that additional disclosure is not required. The restricted cash escrow referenced under "Restricted Cash" is related to a unique situation in Denver for certain immaterial land activities. It is not expected that additional land development activities will result in a similar escrow. Further, the escrow of restricted cash does not impact the Issuer's revenue recognition policy. Therefore, we respectfully submit that additional disclosure is not required. Note 1 -- Summary of Significant Accounting Policies, Warranty Costs, page F-9 62. We note that you provide various warranties and that you establish a liability on a per home basis for expected warranty-related costs. Based on your disclosures here and under critical accounting policies in MD&A, it is not clear to us if your warranty liability includes all warranties or only those that are self-insured. If your warranty liability does not include all warranties, please explain to us how your presentation complies with FIN39. Response: The warranty liability includes all warranties. Note 10 -- Subsequent Event, page F-21 63. Based on your disclosures and the structure of the senior subordinated notes you issued, it appears to us that you are attempting to comply with Rule 3-10(d)(note 5) of Regulation S-X. If true, please revise the notes to your audited financial statements to disclose: - the parent company co-issued the securities; - the parent company has "no independent assets or operations"; - the subsidiary co-issuer is "a 100% owned finance subsidiary of the parent company"; January 31, 2006 Page 23 - all of the parent company's subsidiaries, other than the subsidiary co-issuer, have guaranteed the securities; - all of the guarantors are "100% owned"; and - all of the guarantees are "full and unconditional" and "joint and several". If each of the above is not true, please tell us why you believe your current presentation complies with Rule 3-10. In addition, please provide the narrative disclosures specified in Rules 3-10(i)(9) and (i)(10). Response: The above factors are all accurate and additional disclosure has been added to Note 6 on page F-20 as requested. The Issuers have advised us that there are no significant restrictions on the ability of the Issuers or any subsidiary guarantor to obtain funds from its subsidiaries, nor do any of the conditions described in Rule 4-08(c) of Regulations S-X exist. Therefore, additional narrative disclosure is not required and thus, has not been added. Part II Information Not Required in Prospectus Item 21. Exhibits and Financial Statement Schedules, page II-10 64. Please file each of the following as an exhibit to your registration statement: - the note disclosed in the last paragraph under the heading "Certain Relationships and Related Transactions" on page 66; and - the note disclosed under the heading "Promissory Note" on page 69. Response: The notes have been filed as Exhibits Nos.10.12 and 10.13 to the S-4. Item 22. Undertakings, page II-13 65. Please provide the undertakings required by Item 512(a) of Regulation S-K. Response: The undertakings have been added. 66. Please delete the first undertaking, as you are not permitted to incorporate your subsequent Exchange Act documents into your prospectus. Response: The undertaking has been removed. Signatures 67. It does not appear that Ashton Woods Construction LLC signed the registration statement. We note that Ashton Construction signed the registration statement on page II--18, but this entity does not appear to be a co-registrant. Please revise accordingly. January 31, 2006 Page 24 Response: The signature pages have been corrected. 68. We note that Ashton Houston Residential LLC signed the registration statement twice on page II-15 and that Ashton Houston Development LLC did not sign the registration statement. Please revise accordingly. Response: See response to Comment 67. Exhibit 25.1 69. Please advise us as to the authority you relied upon to include the disclaimer set forth under the heading "Note" on page 3. Response: An updated Exhibit 25.1 has been filed with the S-4, and the updated Exhibit 25.1 does not contain the disclaimer noted in the Staff's comment. 70. Please disclose the filing date of the registration statement from which you have incorporated Exhibits 1 through 4. Response: The updated Exhibit 25.1 filed with the S-4 contains the date of the registration statement from which Exhibits 1-4 are incorporated by reference. Exhibit 99.1 71. Please delete the language requiring a security holder to acknowledge or certify that he or she has "read", "reviewed" or "understands" all of the terms of your exchange offer. Response: The language has been deleted from pages five and 16 of Exhibit 99.1. 72. We note the disclosure in the section entitled "Irregularities" regarding waiving conditions to your exchange offer. In the event that you waive a condition, you must waive it as to all security holders. Please revise accordingly. Response: The disclosure has been revised as requested. * * * * If you have any questions regarding the foregoing responses, please call the undersigned at (404) 815-2287 or Jay Rodriguez at (404) 815-2283. Sincerely, /s/ Elizabeth Hardy Noe for PAUL, HASTINGS, JANOFSKY & WALKER LLP -----END PRIVACY-ENHANCED MESSAGE-----

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elizabethnoe@paulhastings.com

January 31, 2006                                                     58338.00002

Pamela A. Long and Andrew Schoeffler
Division of Corporate Finance
Securities and Exchange Commission
100 F Street, NE
Mail Stop 7010
Washington, DC  20549-7010

Re:   Ashton Woods USA L.L.C.
      Registration Statement on Form S-4
      Filed November 23, 2005
      File No.: 333-129906 and 333-129906-01 through 21

Dear Ms. Long and Mr. Schoeffler:

      On behalf of our clients, Ashton Woods USA L.L.C., a Nevada limited
liability company (the "Issuer"), Ashton Woods Finance Co., a Delaware
corporation (the "Co-Issuer" and together with the Issuer, the "Issuers") and
the subsidiary guarantors referred to in the Form S-4 referenced above (each, a
"Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors"), we are
submitting the Issuers' response to Staff comments conveyed in the Staff comment
letter dated December 20, 2005. This letter is submitted along with Amendment
No. 1 to the Registration Statement on Form S-4 of the Issuers (the "S-4") for
the registration under the Securities Act of 1933, as amended (the "Securities
Act") of $125,000,000 aggregate principal amount of the Issuers' 9.5% senior
subordinated notes due 2015 (the "New Notes") and guarantees thereof by the
Subsidiary Guarantors (the "New Guarantees") issuable in exchange for the
Issuers' existing 9.5% senior subordinated notes due 2015 and the related
guarantees thereof by the Subsidiary Guarantors, which were offered and sold in
a transaction exempt from registration under the Securities Act. Amendment No. 1
to the S-4 was transmitted for filing to the Commission via Edgar on the date
hereof.

      Please note that we have been advised by the Issuers and the Subsidiary
Guarantors that (i) the Issuers are registering the New Notes, and the
Subsidiary Guarantors are registering the New Guarantees in reliance on the
Staff positions enunciated in Exxon Capital Holdings Corp. (avail. April 13,
1989), Morgan Stanley & Co. (avail. June 5, 1991) and Shearman & Sterling
(avail. July 2, 1993), (ii) none of the Issuers, any Subsidiary Guarantor nor
any affiliate of the Issuers or any Subsidiary Guarantor has entered into any
agreement or understanding with any person to distribute the New Notes and the
New Guarantees thereof and (iii) to the best of each Issuer's and each
Subsidiary Guarantor's information and belief, each person participating in the
Exchange Offer is



January 31, 2006
Page 2

acquiring the New Notes and the New Guarantees thereof in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the New Notes and the New Guarantees thereof to be
received in the Exchange Offer. In this regard, we have been advised by the
Issuers and the Subsidiary Guarantors that they will make each person
participating in the Exchange Offer aware (through the Prospectus included in
the S-4 (the "Prospectus")) that if such person is participating in the Exchange
Offer for the purpose of distributing the New Notes and the New Guarantees
thereof to be acquired in the Exchange Offer, such person (i) could not rely on
the Staff position enunciated in Exxon Capital Holdings Corporation or
interpretive letters to similar effect and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. The Issuers and the Subsidiary
Guarantors acknowledge that such a secondary resale transaction should be
covered by an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K. We have also
been advised by the Issuers and the Subsidiary Guarantors that they (i) will
make each person participating in the Exchange Offer aware (through the
Prospectus) that any broker-dealer who holds Original Notes and Original
Guarantees acquired for its own account as a result of market-making activities
or other trading activities, and who receives New Notes and New Guarantees in
exchange for such Original Notes and Original Guarantees pursuant to the
Exchange Offer, may be a statutory underwriter and must deliver a prospectus
meeting the requirements of the Securities Act, which may be the Prospectus so
long as it contains a plan of distribution with respect to such resale
transactions (such plan of distribution need not name the broker-dealer or
disclose the amount of New Notes held by the broker-dealer), in connection with
any resale of such New Notes and New Guarantees and (ii) will include in the
transmittal letter or similar documentation to be executed by an exchange
offeree in order to participate in the Exchange Offer the following additional
provision if the exchange offeree is a broker-dealer holding Original Notes
acquired for its own account as a result of market-making activities or other
trading activities, an acknowledgement that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of New
Notes and New Guarantees received in respect of such Original Notes and Original
Guarantees pursuant to the Exchange Offer. The transmittal letter or similar
documentation may also include a statement to the effect that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.

      With respect to the Staff comment letter, the individual responses of the
Issuers to each of the Staff's comments are set forth below on the Issuers'
behalf, together with the related comments. The headings and numbers of the
responses coincide with the headings and comment numbers set forth in the
comment letter. Please note that the S-4 has been updated to include financial
statements and related disclosure for the Issuer's most recently completed
fiscal quarter ended November 30, 2005. Further, as a result of the revisions
made to the S-4, the page numbers the Staff referred to in its comment letter
may no longer correspond to the page numbers of the S-4 filed herewith. The page



January 31, 2006
Page 3

numbers in the Issuer's responses below correspond to the page numbers in the
S-4 filed herewith.

General

1.    If you intend to rely on the position the staff took in Exxon Capital
      Holdings Corporation (May 13, 1988) and subsequent related no-action
      letters, please provide us with a supplemental letter indicating that you
      are registering your exchange offer in reliance on our position contained
      in these letters and also include the representations contained in Morgan
      Stanley & Co., Inc. (June 5, 1991) and Shearman & Sterling (July 2, 1993).

      Response: See the representations provided above.

2.    Please disclose the information required by Item 19(a)(4) of Form S-4.

      Response: Page 30 of the prospectus has been revised to include a
      statement that no affiliate of the Issuers or the Subsidiary Guarantors
      has a direct or indirect interest in the Exchange Offer.

3.    To the extent additional subsidiaries of the company come into existence
      and are made guarantors on the registered notes prior to the expiration of
      the offering period, we assume you will update the facing page, the
      signature pages, and financial statements to reflect the additional
      guarantors.

      Response: The table of additional registrants and signature pages in
      Amendment No. 1 includes a new subsidiary of the Issuer, Ashton Woods
      Transportation, LLC ("Ashton Transportation"), which became a guarantor of
      the registered notes after November 23, 2005, the date the initial
      Registration Statement on Form S-4 was filed. The most recent financial
      statements in the S-4 are for the fiscal quarter ended November 30, 2005.
      Since Ashton Transportation became a guarantor of the registered notes
      after November 30, 2005, the financial statements in the S-4 do not
      include Ashton Transportation. The Issuers have advised us that Ashton
      Transportation was formed solely purpose of acquiring an aircraft, which
      was acquired in December 2005, and that prior to and as of November 30,
      2005, it did not have any assets or liabilities. Furthermore, the Issuers
      have also advised us that Ashton Transportation will be included in its
      financial statements for periods subsequent to November 30, 2005.

      The Issuers have also advised us that they will update the facing page and
      the signature pages, as requested, to add any additional subsidiaries that
      come into existence and are made guarantors of the registered notes prior
      to the expiration of the offering period. Furthermore, the Issuers have
      advised us that they will update the financial statements to include any
      additional subsidiaries that come



January 31, 2006
Page 4

      into existence and are made guarantors of the registered notes prior to
      the expiration of the offering period, provided that such additional
      subsidiaries became guarantors of the registered notes during the periods
      covered by the financial statements included in the S-4 at that time.

      Prospectus Summary, page 1

4.    Please delete the last sentence of the first introductory paragraph since
      it is clear from the context. In addition, please relocate the second
      introductory paragraph to a more appropriate location in your prospectus.

      Response: The last sentence of the first introductory paragraph has been
      deleted from the S-4. The second introductory paragraph has been moved,
      and it now appears after the Issuer's address and phone number on the
      bottom of page 1. Please note that in order for the Issuers to refer to
      the 2004 and 2005 J.D. Power Awards for Highest in Customer Satisfaction
      with New Homebuilders in Atlanta, the independent company that conducted
      the surveys, J.D. Power and Associates, required the Issuers to include
      the information regarding the parameters of the surveys in the prospectus
      in proximity to the initial statements regarding the awards. Therefore, we
      believe it is appropriate to include this information in the prospectus
      summary.

5.    Please substantially revise the disclosure under the heading "Business
      Strategy" as this disclosure merely repeats entire portions of your
      Business section. Your summary should be limited to providing a brief
      overview of the most important aspects of your business. If you believe
      this disclosure is necessary, reduce the disclosure to a bullet point
      presentation, with one sentence per bullet point.

      Response: The disclosure under the heading "Business Strategy" on page 1,
      has been revised to a bullet point presentation to reduce repetition.

      Material United States Federal Income Tax Consequences, page 6

6.    We note the disclosure that your exchange offer "will" not result in a
      taxable event. Please reconcile with the disclosure in the second sentence
      of the first paragraph under the heading "Exchange Offer" on page 115 that
      your exchange offer "should" not result in a taxable event.

      Response: The statement on page 120 has been revised to indicate that the
      exchange offer "will" not result in a taxable event.

      Risk Factors, page 13



January 31, 2006
Page 5

      Our home sales and operating revenues could decline due to
      macroencomic..., page 13

7.    Item 503(c) of Regulation S-K states that issuers should not "present risk
      factors that could apply to any issuer or any offering." It appears that
      the risk described under this subheading could apply to nearly any issuer.
      Please revise to clearly explain how this risk specifically applies to
      you. Please also comply with this comment in risk factors seven, 11, 16,
      and 17.

      Response: Risk factors one, seven, 11 and 16 have been revised to explain
      how the risks apply to the Issuer's business. Risk factor 17 has been
      deleted in that the risk identified does not apply to the Issuer in a
      manner different from any issuer.

      Our operating results are variable, which may cause the value of the
      notes..., page 13

8.    Please provide examples to illustrate the risk described under this
      subheading. Please also comply with this comment in risk factors three and
      12.

      Response: Risk factors two, three and 12 have been revised to provide
      specific examples of the way these risks could impact the Issuer's
      business.

      We may incur additional operating expenses due to compliance..., page 15

9.    Please quantify the risks described under this subheading. Please also
      comply with this comment in risk factors nine, 10, 13 and 14.

      Response: In order to quantify the risks described in risk factors eight,
      nine, 10, 13 and 14, the Issuer would need to make a number of
      assumptions. However, the assumptions that the Issuer would be required to
      make in order to quantify the risk would be based on speculation, rather
      than good faith estimates based on the experience of the Issuer's
      management. For example, in order to quantify the risks associated with
      fines and penalties for violations of environmental laws, the Issuer would
      be required to assume, among other things, what the potential violation
      might be; whether the fines and penalties would be imposed by local, state
      or federal authorities or some combination of thereof; and the fines and
      penalties that local, state and federal law impose for the assumed
      violation. Also, for example, in order to quantify the effect of higher
      insurance premiums as a result of construction and product defect
      liability claims, the Issuer would be required to assume what defect or
      defects caused the increase in premiums; the dollar amount of its exposure
      as a result of the assumed defect or defects; and how its insurers would
      calculate the increase in premiums as a result of the defect or defects.
      Because such quantifications would be based purely on speculation, we
      believe that providing them would not be useful to investors and could be



January 31, 2006
Page 6

      misleading. Consequently, the Issuer the does not believe that it is
      appropriate to amend risk factors eight, nine, 10, 13 and 14 in order to
      quantify the risks described therein. Although risk factors eight, nine,
      10, 13 and 14 have not been revised to include a quantifications of the
      risks, where appropriate they have been revised to more particularly
      describe the impact each of these risks could have on the Issuer.

      We may be unable to generate sufficient cash to service our debt..., page
      18

10.   Please quantify your annual debt service costs and the impact of an
      interest rate change on these costs. For example, what would be the impact
      of a one percent increase in your interest rates?

      Response: Page 17 has been revised to include the Issuer's annual debt
      service costs for both its fixed rate and variable rate indebtedness. The
      revised disclosure also discusses the impact a 1% increase in interest
      rate would have on the Issuer's variable rate indebtedness.

      The Exchange Offer, page 23

11.   Please apply the comments on this section set forth below to the section
      entitled "The Exchange Offer" beginning on page 4 and to Exhibit 99.1, as
      appropriate.

      Response: Each of the responses noted below resulting in changes to the
      Exchange Offer section of the Prospectus will also be reflected in Exhibit
      99.1 to the extent applicable.

      Expiration Date; Extensions; Amendment, page 25

12.   We note that you will announce the extension of the offer by making a
      public announcement prior to 5:00 p.m. on the next business day after the
      previously scheduled expiration date. Please revise the disclosure to
      comply with Rule 14e-1(d), which requires you to make the announcement
      prior to 9:00 a.m.

      Response: The disclosure on page 24 has been revised to clarify that any
      announcement regarding an extension of the offer will be made prior to
      9:00 a.m. on the next business day after the previously scheduled
      expiration date.

13.   We note that you reserve the right to "delay accepting any original
      notes." Please clarify in what circumstances you will delay acceptance.
      For example, if you are referring to the right to delay acceptance only
      due to any extension of the exchange offer, so state.



January 31, 2006
Page 7

      Response: The disclosure is intended to indicate that a delay in accepting
      any original notes will occur in connection with an extension of the
      exchange offer. To clarify this point, we have added an "and" to connect
      the concepts of delaying acceptance and of extending the exchange offer in
      the referenced bullet point on page 24.

14.   We note the disclosure in the second sentence of the first paragraph on
      page 26. Please revise here and, as appropriate, elsewhere in your
      prospectus to indicate that in the event of a material change in your
      exchange offer, including the waiver of a material condition, you will
      extend your exchange offer period, if necessary, so that at least five
      business days remain in your exchange offer following notice of the
      material change.

      Response: The last sentence of the first paragraph on page 25 has been
      revised to read as follows: "In the event of a material change in the
      Exchange Offer, including the waiver of any material condition by the
      Issuers, we will extend the Exchange Offer, if necessary, so that at least
      five business days remain prior to the expiration date following the
      notice of the material change." We have also made similar revisions on
      page 29.

      Exchange Offer Procedures, page 26

15.   We note the disclosure in the last sentence of the fifth full paragraph on
      page 27 that the exchange agent will return certain original notes "as
      soon as practicable following the expiration date." Please reconcile with
      the disclosure in the third sentence of the last paragraph under the
      heading "Withdrawal of Tenders" on page 29. In addition, Rule 14e-1(c)
      under the Exchange Act requires that you return the original notes
      "promptly" upon expiration or termination of your exchange offer. Please
      revise here and, as appropriate, elsewhere in your prospectus accordingly.

      Response: The sentence referenced on page 26 (formerly page 27) refers to
      the situation where original notes have not been properly tendered and
      thus are being returned to the holder. Generally, such return will be
      without cost to the holder, however, the Issuers may provide differently
      in a letter of transmittal requiring the holder to pay for the return of
      notes not properly tendered. The sentence on page 28 (formerly page 29)
      refers to a different situation where notes have been properly tendered,
      but are not accepted for exchange by the Issuers as a result of
      withdrawal, rejection of tender or termination of the exchange offer. The
      Issuers do not intend to require payment by the holders for the return of
      these notes in any circumstances. Because of these differences, the
      disclosure cannot be fully reconciled. The language on page 26 has been
      revised to make clear that the improperly tendered notes will be returned
      "promptly" as opposed to "as soon as practicable".



January 31, 2006
Page 8

      Conditions, page 29

16.   Please disclose the basis upon which you will determine whether any
      condition has been satisfied. Please note that you must provide an
      objective standard for determining whether a condition has been satisfied.
      In this regard, we note that you currently use a "reasonable discretion"
      standard.

      Response: It appears that the language referenced did not correctly convey
      the information intended to be provided to the reader. Each of the
      conditions referenced is an objective condition as to which the Issuers
      are not able to use discretion in determining existence of the condition.
      The condition will either objectively exist or not exist based on factors
      outside of the Issuers' control. The discretion intended to be referred to
      is the Issuers' decision whether to waive the condition or take one of the
      other actions enumerated. Therefore, the lead-in language on page 29 has
      been revised to read as follows: "If any of the foregoing conditions
      exist, we may, in our reasonable discretion:"

      Use of proceeds, page 32

17.   Please provide the information specified in Instruction 4 to Item 504.

      Response: As is noted under Use of Proceeds, the S-4 relates to an
      exchange offer of new securities for outstanding securities to satisfy
      obligations under a registration rights agreement entered into by the
      Issuers in connection with the issuance and sale of the original notes.
      The Issuers will not receive any cash proceeds from the issuance of the
      new notes. Therefore, there are no proceeds being used to repay
      indebtedness out of this offering, and we respectfully submit that the
      information described in Instruction 4 of the Item 504 is not applicable.
      The Issuers have referenced in the second paragraph under "Use of
      Proceeds" what the use of proceeds was with respect to the original
      issuance of the notes which occurred prior to this exchange offer. The
      information required by Instruction 4 of Item 504 was provided to
      investors when they were purchased in the prior private placement.

      Summary consolidated financial information and operating data, page 10 and
      Selected historical consolidated financial and operating data, page 34

18.   Since you present a non-GAAP performance measure that excludes recurring
      expenses, please revise your current presentation to fully comply with our
      response to Question 8 of "Frequently Asked Questions Regarding the Use of
      Non-GAAP Financial Measures." It appears to us that your current
      presentation does not address the material limitations associated with the
      non-GAAP measure you present or the manner in which you compensate for
      these limitations.



January 31, 2006
Page 9

      Response: Additional disclosure regarding the limitations of EBITDA as a
      measure of performance has been added to note (2) on pages 9 and 35.

      Management's Discussion and Analysis of Financial Condition ..., page 37

      Overview, page 37

19.   Please expand your overview section to discuss the impact of raw material
      costs and your significant backlog on the financial condition and results
      of operations of your company.

      Response: Additional discussion has been added to the Overview section on
      page 37 to discuss the impact of raw material costs and the Issuer's
      backlog on the Issuer's financial condition and results of operations.

20.   We note the disclosure in the second bullet point of each of the fourth,
      fifth and seventh paragraphs regarding the amount of your backlog. Please
      balance your disclosure by discussing the 15 to 20 percent of the backlog
      that you expect will be cancelled. We note the disclosure in the seventh
      full paragraph on page 42. Please also indicate what portion of the
      backlog you do not reasonably expect to fill in the current fiscal year.

      Response: After reviewing the Staff's comment above, the Issuer believes
      that disclosure regarding the cancellation of homes in backlog may have
      been confusing. The disclosure regarding backlog has been revised to
      clarify that backlog represents the number and value of new sale orders
      net of any cancellations that may have occurred during a reporting period.
      The Issuer has advised us that historically they have experienced a
      cancellation rate of 15%-20% of the gross new orders recorded during a
      reporting period, rather than a cancellation rate of 15%-20% of the homes
      in backlog. Pages 36, 42 and 44 have been updated to clarify this point.
      Furthermore, page 36 has been revised to include a statement that the
      Issuer believes that 80%-85% of its backlog as of November 30, 2005 will
      be sold during the current fiscal year. The Issuer believes that providing
      the disclosure regarding percentage of its backlog that will close during
      the current fiscal year, rather than the percentage of backlog that will
      not close during the fiscal year, is consistent with Item 101(c)(1)(viii)
      of Regulation S-K.

21.   We note the disclosure in the third sentence of the sixth paragraph
      regarding the delays in receiving government approvals. Please disclose
      the reasons why you have experienced these delays.



January 31, 2006
Page 10

      Response: The disclosure in the third sentence of the sixth paragraph on
      page 37 regarding delays in receiving government approvals has been
      supplemented to explain the reasons for these delays.

22.   We note the significant impact that land sales have had on your results of
      operations. Please revise MD&A to address the factors that you consider in
      determining if and when to sell land and address the extent to which you
      believe future land sales will impact your operating results.

      Response: Page 36 of the S-4 has been revised to explain the factors that
      the Issuer considers in determining if and when to sell land and the
      anticipated impact that future land sales will have on the Issuer's
      operating results.

      Results of Operations, page 38

23.   Where there is more than one business reason for a change in a line item,
      please quantify the incremental impact of each individual business reason
      discussed in the overall change in the line item. For example, you
      disclose three reasons for the increase in general and administrative
      expenses for the period ended August 31, 2005 as compared to the period
      ended August 31, 2004, but you do not state the relative impact of each
      reason.

      Response: The "Management's Discussion and Analysis" for the period ended
      August 31, 2005 has been replaced with the "Management's Discussion and
      Analysis" for the three- and six-month periods ended November 30, 2005.
      Therefore the specific disclosures referred to in the Staff's comment have
      been deleted. However, we understand that the comment applies to the
      Issuer's "Management's Discussion and Analysis" in general. While in
      certain instances it would be possible to attribute relative impact of a
      number of reasons causing a change in a financial statement line item, the
      Issuer does not believe this information is material to the reader and
      would in fact serve to confuse them. The impact that various elements may
      have on results of operations will vary from time to time, and thus, the
      impact in any one period would not be informative as to the impact such
      item may have in the future. Where a factor is the primary reason for a
      change in a line item, the Issuer has and will continue to note that it is
      the primary factor. However, when there are a number of factors that
      contributed to the change where none is dominant, we submit it is more
      appropriate to describe the factors without attributing relative
      significance.

      Three Months Ended August 21, 2005 Compared to Three Months Ended....,
      page 41

24.   Please disclose the reasons why you experienced a decline in the amount of
      land sales revenues.



January 31, 2006
Page 11

      Response: For the three month-period ended November 30, 2005, land sales
      actually increased over the same period during the prior fiscal year.
      However, for the six-month period ended November 30, 2005 land sales
      actually decreased slightly over the same period during the prior fiscal
      year. The revised disclosure on pages 40 and 41 includes an explanation of
      both the changes.

25.   Please explain why homes in Dallas and Houston have lower gross margins
      than homes in Atlanta, Orlando and Phoenix.

      Response: Margins are driven by the cost to construct a home compared to
      the price that the home can receive in the particular market. The housing
      markets in Dallas and Houston have experienced difficulties recently due
      to economic and other factors in the Texas region, such as a series of job
      losses during the past several years in the telecommunications, technology
      and airline industries, that have adversely affected the ability of
      homebuilders to sell their homes as quickly as desired and with the gross
      margins desired. When compared to markets that have experienced employment
      gains, such as Atlanta, Orlando and Phoenix, the condition of the Dallas
      and Houston markets has not been as favorable to homebuilders, and as a
      result, homebuilders in Dallas and Houston have sold fewer homes and have
      obtained lower gross margins on the homes they have sold in Dallas and
      Houston. Please note that "Management's Discussion and Analysis" was
      updated for the period ended November 30, 2005, and as a result of the
      change in the factors affecting the Issuer's operating results for that
      period, the reference to lower margins in the Dallas and Houston markets
      has been deleted.

      Liquidity and Capital Resources, page 45

26.   We note your disclosure in the last sentence of the first paragraph that
      you plan to finance your operations through the proceeds of the original
      notes. However, it appears that you used all of those proceeds to repay
      outstanding indebtedness. In this regard, we note your disclosure under
      the heading "Use of Proceeds" on page 32. Please revise to clarify your
      financing sources. In addition, please comply with this comment in third
      sentence of the first paragraph under the heading "Contractual
      Obligations" on page 46.

      Response: The reference in each of these sentences to the proceeds of the
      notes offering has been deleted. While the notes offering indirectly
      provided funding as a result of decreasing outstanding debt under the
      credit facility and making it available to the Issuer for future funding,
      the Staff is correct that the proceeds of that offering will not directly
      be used as a financing source and the reference is redundant to the
      reference to the senior unsecured credit facility.

27.   We note the disclosure in the second paragraph. Please explain the reasons
      why your debt to capitalization ratio has increased.



January 31, 2006
Page 12

      Response: Page 45 of the S-4 has been updated to explain the increase in
      the Issuer's debt to capitalization ratio.

      Table of Contractual Obligations, page 47

28.   Please provide an updated tabular disclosure of your contractual
      obligations that includes the senior subordinated notes and related
      interest payments. In addition, please explain why you believe excluding
      obligations of certain entities consolidated under FIN 46R is appropriate.
      At a minimum, it appears to us that you should quantify and disclose the
      time periods of these obligations in note (4). It also appears to us that
      you should quantify and disclose all land purchase options you have
      entered into and the time periods they are required to be exercised; and
      all obligations and land purchase options of your equity investments.

      Response: The table of contractual obligations has been updated to
      November 30, 2005 so that it includes the indebtedness under the original
      notes and related interest payments and reflects the use of proceeds from
      the issuance and sale of the notes. Further, we believe the reference in
      footnote 4 to the exclusion of obligations of certain FIN 46R consolidated
      entities was confusing and not completely accurate. The contractual
      obligations table includes obligations under specific performance lot
      option purchase agreements. The Issuer is also party to lot option
      purchase agreements that do not contain specific performance provisions.
      In those situations, the Issuer's only obligation relates to nonrefundable
      deposits, letters of credit posted in support of those contracts and any
      other nonrefundable amounts set forth in the contract. Therefore, the
      additional purchase price for the land under option is not an obligation
      of the company but simply is an option for future purchase. In order to
      clarify the Issuer's potential obligations with respect to all land and
      lot option purchase agreements, including those with and without specific
      performance obligations, additional tabular disclosure of obligations
      under these purchase contracts has been included on pages 48 and 49.

      Operating Cash Flow, page 45
      Investing Cash Flow, page 46
      Financing Cash Flow, page 46

29.   Please explain the business reasons for each change between periods
      discussed in these sections.

      Response: The discussions of operating, investing and financing cash flows
      on pages 46 and 47 have been revised to include explanations of the
      business reasons for the changes in such cash flows.



January 31, 2006
Page 13

      Senior Unsecured Credit Facility, page 46
      9.5% Senior Subordinated Notes, page 46

30.   It appears that your debt agreements contain certain covenants. Please
      discuss the impact of these covenants on your operations, including any
      impact on your financial condition or results of operations.

      Response: A discussion regarding the covenants contained in the senior
      unsecured credit facility and the indenture governing the notes has been
      added on page 47. Please note that the indenture covenants are
      primarily incurrence covenants and thus do not have as significant an
      impact as those in the senior unsecured credit facility. This fact is
      noted in the disclosure included on page 47.

      Business, page 52

31.   Please disclose the information required by Item 101(c)(iii) of Regulation
      S-K.

      Response: On page 61, the last paragraph contains a discussion of the
      sources and availability of raw materials for the Issuer's business. In
      the homebuilding industry, raw materials, such as lumber, construction
      supplies, roofing supplies, appliances and other materials for the home
      construction process, are readily available from numerous sources. As
      disclosed under "Construction" on pages 61 and 62 of the S-4, the Company
      enters into agreements with material suppliers after competitive bidding
      and has numerous suppliers of raw materials and services for its
      homebuilding business. Because of the general availability of raw
      materials in the Issuer's industry and the fact that it does not have
      long-term contractual commitments with any of its suppliers as disclosed,
      we respectfully submit that additional disclosure regarding raw materials
      is not necessary.

32.   Under an appropriately titled heading, please discuss in reasonable detail
      the title services that you provide through two joint ventures. In
      addition, please disclose the percentage of your revenues derived from
      this business. Finally, please file the joint venture agreements relating
      to these entities as exhibits to your registration statement.

      Response: A discussion of the Issuers' title services has been added on
      page 61 under a heading of "Title Services". The title joint ventures are
      managed by an unrelated party. The Issuer's ownership position is
      approximately 49% and is accounted for under the equity method.
      Consequently, the joint ventures are not included in the computation of
      the Issuer's revenues. The joint venture agreements relating to the
      entities providing these title services have been filed as Exhibits 10.9,
      10.10 and 10.11 to the S-4.



January 31, 2006
Page 14

33.   Please describe in reasonable detail the material terms of your home
      building contracts. For example, what are the rights of the parties with
      respect to the cancellation of a contract?

      Response: A description of the material terms of the Issuer's homebuilding
      contracts has been added on page 61. While the cancellation rights under
      each contract is driven by the law of the state in which the contract is
      entered into, a general summary of these rights is also provided.

34.   Please disclose the basis for your statements in the first and fourth
      sentences of the introductory paragraph.

      Response: The statement regarding the Issuer's status as one of the
      largest private homebuilders is based both on the number of closings and
      on revenues. The first sentence in the introductory paragraph on page 54
      has been revised to clarify this basis. The same clarification has been
      made on pages 1 and 36. The information in the fourth sentence regarding
      the standing of the company's markets is based on data provided by the
      U.S. Census Bureau. A reference to this entity has also been added in that
      sentence on page 54, as well as pages 1 and 37.

35.   Please identify the nationally recognized survey company referenced in the
      last sentence of the introductory paragraph. Please also advise us as to
      whether this survey is generally available to the public, without payment
      of a subscription or other fees. Has this survey been published in widely
      circulated media or among members of the industry? If so, please tell us
      when and where.

      Response: The nationally recognized survey company referenced in the last
      sentence of the introductory paragraph is J.D. Power. However, J.D. Power
      refused to give the Issuer permission to use their name with respect to
      this particular survey because it is not publically published by J.D.
      Power. We believe that the Issuer's receipt of these rankings in the
      customer satisfaction survey is important support for information
      otherwise provided to investors, and therefore, respectfully submit that
      it is important to continue to disclose this information, notwithstanding
      J.D. Power's refusal to allow that their name be used. The Issuers and
      Subsidiary Guarantors have no relationship with J.D. Power, so the Issuers
      have modified the language to make it clear that the nationally recognized
      survey company is not an affiliate.

      Business Strategy, page 52

      Provide Our Customers with Superior Value..., page 52

36.   We note your statement that you are "recognized for building homes that
      offer superior design..." Please disclose the basis for this statement.



January 31, 2006
Page 15

      Response: The statement regarding the Issuers' recognition for building
      homes that offer superior design, etc. is based on the fact that the
      Issuers have received numerous awards for such quality. Therefore, the
      referenced sentence has been revised to indicate this basis.

37.   We note the disclosure in the second sentence of the second paragraph.
      Please identify the organizations that sponsored the awards and whether
      you have any affiliation with these sponsors.

      Response: The awards referenced in this comment are generally awarded by
      local homebuilder associations. The disclosure on page 54 has been revised
      to indicate the identity of the various homebuilder associations. The
      disclosure has also been revised to state that other than the Issuer's or
      its subsidiaries membership in the sponsoring organizations, the Issuer
      and its subsidiaries do not have any other affiliations with these
      organizations. The parenthetical reference to (HBA) or (MAME) was intended
      to be a reference to these associations; however, based on the Staff's
      comment it is clear that these references were not apparent.

38.   We note the disclosure in the third sentence of the second paragraph
      regarding the five star rating. Please identify the organization that
      awards this rating and whether you have any affiliation with this
      organization.

      Response: The five star rating for home design in Atlanta was also a J.D.
      Power award and the reference to J.D. Power in that sentence was intended
      to modify both awards mentioned. The sentence has been revised to better
      clarify that this is a J.D. Power award.

      Customer Financing, page 58

39.   Please describe in greater detail the mortgage origination business and
      the percentage of your revenues derived from this segment of your
      business.

      Response: Additional detail regarding the Issuers' mortgage origination
      business has been included on page 61. The mortgage origination business
      is conducted through a joint venture with Wells Fargo Mortgage, LLC, an
      unrelated party, and the earnings of this joint venture are reported using
      the equity method. Consequently, the joint venture's revenues are not
      included in the computation of the Issuer's revenue. Rather, under the
      equity method, the joint venture's earnings are reported on the Issuer's
      income statement as a component of the line item "Earnings in
      unconsolidated subsidiaries."

40.   Please explain the meaning of the term "mortgage capture rate."



January 31, 2006
Page 16

      Response: The mortgage capture rate represents the percentage of homes
      closed by the Issuer where the buyer used the mortgage origination
      services of Ashton Woods Mortgage, L.L.C. The disclosure in the last
      sentence under "Customer Financing" on page 61 has been revised to clarify
      this term.

41.   Please file the joint venture agreements relating to Ashton Woods
      Mortgage, L.L.C. as exhibits to your registration statement.

      Response: The joint venture agreement relating to Ashton Woods Mortgage,
      L.L.C. has been filed as Exhibit 10.8 to the S-4.

      Competition and Market Factors, page 60

42.   Please discuss your competition's advantages over you and how this affects
      your competitive position within your industry.

      Response: Additional information regarding competitors' advantages over
      the Issuer and how such advantages affect the Issuer's competitive
      position has been added on page 63.

      Government Regulation and Environmental Matters, page 60

43.   Please disclose the information required by Item 101(c)(xii) of Regulation
      S-K.

      Response: Additional disclosure regarding the effect of compliance with
      environmental regulations on the Issuers' capital expenditures, earnings
      and competitive position has been provided on page 63. The Issuers do not
      have any material estimated capital expenditures for environmental control
      facilities at this time and thus no such disclosure is included.

      Legal Proceedings, page 61

44.   We note that you refer to the potential impact of contingences on your
      "financial position" here and in note 8 on page F-21. Please revise your
      disclosures to address other financial measures, including results of
      operations and cash flows, or the financial statements as a whole. Please
      be advised that if you believe a material loss is reasonably possible, you
      should provide all the disclosures required by SFAS 5 and SAB 5:Y.

      Response: The disclosure under Legal Proceedings has been revised to
      indicate that none of the matters will have a "material adverse impact
      upon our consolidated financial statements as a whole if decided against
      us." The Issuers do not believe a material loss is reasonably possible as
      noted in Note 8 to the audited financial statements.



January 31, 2006
Page 17

      Management, page 62

45.   Please disclose the information required by Items 402(g) and (h) of
      Regulation S-K. See Item 19(a)(7)(ii) of Form S-4.

      Response: Directors do not receive any compensation from the Issuers for
      their services as directors. A statement to this effect has been added to
      the management section. With respect to the information required by Items
      402, at the time of filing the original S-4, no executive officers of the
      Issuers were subject to employment agreements or change of control
      agreements. Subsequent to such filing, an employment agreement was entered
      into between the Issuer and Tom Krobot on January 30, 2006. Disclosure
      regarding this agreement has been added beginning on page 66.

      Audit Committee Financial Expert, page 63

46.   Please disclose whether Mr. Joffe is independent, as that term is defined
      under Item 7(3)(d)(iv) (sic) of Schedule 14A. See Item 401(h) of
      Regulation S-K. Please also refer to Item 19(a)(7)(i) of Form S-4.

      Response: Mr. Joffe does not meet the definition of independence under the
      rules promulgated by either Nasdaq or the New York Stock Exchange.
      Disclosure regarding the lack of independence has been added on page 67.
      Please note that because the Issuer does not have any securities listed on
      a national securities exchange or in an automated inter-dealer quotation
      system of a nation securities association, it is not required to have
      independent directors.

      Compensation Committee Interlocks and Insider Participants, page 63

47.   Please revise this section to provide the information required by Item
      402(j) of Regulation S-K.

      Response: Mr. Krobot was added to the board of directors of Ashton Woods
      USA L.L.C. shortly before the filing of the Form S-4. As the Staff
      correctly notes, Mr. Krobot's role as an employee of the Issuer should be
      noted under Compensation Committee Interlocks and Insider Participation,
      although he did not participate in compensation committee actions during
      the last fiscal year in that he was not added to the Board of Directors
      until after the fiscal year end. A statement to this effect has been added
      on page 68. Further, in accordance to the requirements of Item 402(j), a
      cross reference to the related party transactions disclosed on pages 71
      and 72 has been included on page 68.

      Certain Relationships and Related Transactions, page 66



January 31, 2006
Page 18

48.   Please state whether you believe that the transactions you describe in
      this section are on terms at least as favorable to your company as you
      would expect to negotiate with unrelated third parties.

      Response: The Issuers have informed us that they do believe that the
      transactions described under "Certain relationships and related
      transactions" are on terms at least as favorable to the Issuers as would
      be expected in negotiations with unrelated third parties. A statement to
      this effect has been added on page 72.

49.   Please identify the related party referenced in the fifth paragraph.

      Response: Page 71 of the S-4 has been revised to identify Larelnor
      Developments Inc. as the related party discussed in the fifth paragraph.

      Description of Other Indebtedness, page 68

50.   Please delete the second sentence of the introductory paragraph, as the
      summary should be materially complete. In addition, please clarify that
      the summary sets forth the material terms of the agreements governing your
      indebtedness.

      Response: The second sentence has been deleted as requested. In the first
      sentence the reference to "principal terms" has been changed to a
      reference to "material terms".

      Senior Unsecured Credit Facility, page 68

51.   We note the statement in the fourth paragraph that after giving effect to
      the use of proceeds from the sale of the original notes that you will have
      no outstanding borrowings under the senior unsecured credit facility.
      Please reconcile with the capitalization table on page 33, which show
      there will be $23.7 million outstanding on an as adjusted basis.

      Response: The statement on page 68 of the original S-4 indicating that
      there would be no borrowings outstanding was incorrect. The information in
      the capitalization table on page 33 was correct. However, with the
      updating of the S-4 to November 30, 2005, the statements referenced in the
      Staff's comment have been deleted.

52.   We note the disclosure in the sixth paragraph. Please disclose whether you
      are in compliance with these covenants as of the most recent practicable
      date.

      Response: Disclosure regarding compliance with covenants has been added on
      page 74 as requested.



January 31, 2006
Page 19

      Description of the Notes, page 70

53.   Please remove the statement in the second sentence of the second paragraph
      that your summary is qualified by reference to the indenture, as it is
      inconsistent with Rule 411 of Regulation C.

      Response: The referenced sentence has been removed.

      Certain Covenants, page 75

54.   We note the statement that the "indenture will contain, among others, the
      following covenants." It appears that the indenture is outstanding. Please
      revise accordingly.

      Response: The language has been revised accordingly.

55.   Please disclose whether you are in compliance with the covenants under the
      indenture as of the most recent practicable date.

      Response: The sentence regarding compliance has been added on page 80.

      Where You Can Find More Information, page 120

56.   Please delete the fourth sentence of the first paragraph. The disclosure
      in your prospectus regarding any contracts, agreements and other documents
      should be materially complete.

      Response: The referenced sentence has been deleted.

      Financial Statements

      Report of Independent Registered Public Accounting Firm, page F-2

57.   Request that your auditors revise their report to include a conformed
      signature and the city and state where issued as required by Rule 2-02(a)
      of Regulation S-X.

      Response: A revised report is included in the S-4.

      Note 1 -- Summary of Significant Accounting Policies, Presentation, page
      F-7

58.   Please demonstrate to us how you determined that that your homebuilding
      operations have similar economic characteristics as required by SFAS 131.

      Response: The Issuer conducts homebuilding operations in seven geographic
      markets, Atlanta, Dallas, Houston, Orlando, Phoenix, Tampa and Denver.



January 31, 2006
Page 20

      However, the Issuer has determined that it operates in one reportable
      segment--homebuilding, in that all of the Issuer's geographic markets sell
      similar products, have similar building processes, market to similar
      classes of customers and have similar economic characteristics, as
      described below.

      The economic characteristics that drive the sale of the Issuer's
      homebuilding products and the homebuilding industry generally are the same
      within each of the Issuer's geographic locations. The primary
      characteristics are:

                  -     employment growth and levels of unemployment;

                  -     general health of the overall local economy;

                  -     the availability of mortgage financing and the level of
                  mortgage interest rates.

      The status of each of these economic characteristics in each of the
      Issuer's geographic locations may vary at a particular point in time
      (e.g., high unemployment in Dallas versus strong employment in Phoenix);
      however, the performance of each of them will similarly drive the sales
      and construction of the Issuer's homes with equal force regardless of
      location. For example, in geographic markets in which employment growth is
      strong, the Issuer is able to sell homes more rapidly and to charge a
      higher sales price. Consequently, the Issuer will obtain better gross
      margins in that particular market during the period of growth. Conversely,
      in markets in which the unemployment rate is high and employment growth is
      not strong, the sale of the Issuer's products will slow, which may in turn
      require the Issuer to offer incentives to potential homebuyers to buy its
      products. Those incentives will result in the Issuer earning lower gross
      margins from the sale of its homes in that market.

      Geographic market performance of the Issuer's line of products relative to
      unit sales and profitability fluctuate from year to year due to, among
      other things, the strength of local management, the location of the
      specific home sites available for sale, its product design relative to the
      target buyer profile (i.e., targeting the correct buyer and selecting the
      correct home size, style, amenity level, finish levels for the targeted
      buyer), the execution of its marketing and sales efforts, construction
      quality, weather conditions and the economic condition of the specific
      geographic market. The level of mortgage interest rates and mortgage
      underwriting guidelines also have significant effects on the performance
      of the Issuer's home sales, both new and used, throughout the country.



January 31, 2006
Page 21



      The Issuer has advised us that in accordance paragraph 17 of SFAS 131, it
      assessed whether the markets in which it operates exhibit similar
      long-term economic financial performance. The Issuer has also advised us
      that it evaluated its average gross margins in all of its markets for each
      of the past five years and its expectations with respect to future
      performance, i.e., average gross margins, in all of its markets and has
      concluded that over a period of years and changes in regional economic
      cycles, gross margins experienced in all homebuilding markets equalize and
      produce similar economic results, i.e., gross margins. As such, the Issuer
      believes that each of its markets has similar economic characteristics and
      therefore its markets meet the criteria set forth in Paragraph 17 of SFAS
      131. Consequently, the Issuer believes that it operates in a single
      reportable segment -- homebuilding. The Issuer believes that this
      concluded is consistent with GAAP and with the presentation of other
      public homebuilders with similar operations, including those that operate
      in more than one geographic market and under more than one trade name.

      Note 1 -- Summary of Significant Accounting Policies, Inventory, page F-7

59.   Please disclose how you allocate the costs you capitalize in inventory.

      Response: Page F-7 of the S-4 has been revised to include a description of
      how the Issuer allocates the costs capitalized to inventory.

60.   Based on your disclosed policy related to how you assess inventory for
      impairments, it is not clear to us if you evaluate homes under
      construction and land held for sale in accordance with paragraph 34 of
      SFAS 144. Please revise and clarify your disclosed policy here and under
      critical accounting policies in MD&A or explain to us how your disclosed
      policy fully complies with SFAS 144.

      Response: The Issuer has advised us that it does evaluate finished
      inventories and land held for sale in accordance with paragraph 34 of SFAS
      144. The second paragraph under the heading "Inventory" has been revised
      to make clear how the various types of real estate inventories are
      included in the valuations in order to comply with SFAS 144. The
      discussion of critical accounting policies on page 51 has been revised in
      order to clarify this point.


January 31, 2006
Page 22

      Note 1 -- Summary of Significant Accounting Policies, Revenue Recognition,
      page F-8

61.   We note that you design, build and market single-family detached homes,
      town homes and stacked-flat condominiums. If applicable, please expand
      your revenue recognition policy for each type of unit you sell. In
      addition, please address the specific conditions required for you to
      recognize revenue related to land sales and explain to us if and how any
      additional land development activities, as disclosed under restricted
      cash, impact your policy.

      Response: We have been informed by the Issuer that its revenue recognition
      policy does not differ by the type of unit sold. Therefore, we submit that
      the disclosure in the note on page F-8 does not require revision. Revenue
      is recognized with respect to land sales after all the criteria of
      paragraph 5 of SFAS 66 have been met. There are no other conditions to the
      recognition of revenue; therefore, we respectfully submit that additional
      disclosure is not required. The restricted cash escrow referenced under
      "Restricted Cash" is related to a unique situation in Denver for certain
      immaterial land activities. It is not expected that additional land
      development activities will result in a similar escrow. Further, the
      escrow of restricted cash does not impact the Issuer's revenue recognition
      policy. Therefore, we respectfully submit that additional disclosure is
      not required.

      Note 1 -- Summary of Significant Accounting Policies, Warranty Costs, page
      F-9

62.   We note that you provide various warranties and that you establish a
      liability on a per home basis for expected warranty-related costs. Based
      on your disclosures here and under critical accounting policies in MD&A,
      it is not clear to us if your warranty liability includes all warranties
      or only those that are self-insured. If your warranty liability does not
      include all warranties, please explain to us how your presentation
      complies with FIN39.

      Response: The warranty liability includes all warranties.

      Note 10 -- Subsequent Event, page F-21

63.   Based on your disclosures and the structure of the senior subordinated
      notes you issued, it appears to us that you are attempting to comply with
      Rule 3-10(d)(note 5) of Regulation S-X. If true, please revise the notes
      to your audited financial statements to disclose:

            -     the parent company co-issued the securities;

            -     the parent company has "no independent assets or operations";

            -     the subsidiary co-issuer is "a 100% owned finance subsidiary
                  of the parent company";



January 31, 2006
Page 23

            -     all of the parent company's subsidiaries, other than the
                  subsidiary co-issuer, have guaranteed the securities;

            -     all of the guarantors are "100% owned"; and

            -     all of the guarantees are "full and unconditional" and "joint
                  and several".

      If each of the above is not true, please tell us why you believe your
      current presentation complies with Rule 3-10. In addition, please provide
      the narrative disclosures specified in Rules 3-10(i)(9) and (i)(10).

      Response: The above factors are all accurate and additional disclosure has
      been added to Note 6 on page F-20 as requested. The Issuers have advised
      us that there are no significant restrictions on the ability of the
      Issuers or any subsidiary guarantor to obtain funds from its subsidiaries,
      nor do any of the conditions described in Rule 4-08(c) of Regulations S-X
      exist. Therefore, additional narrative disclosure is not required and
      thus, has not been added.

      Part II Information Not Required in Prospectus

      Item 21. Exhibits and Financial Statement Schedules, page II-10

64.   Please file each of the following as an exhibit to your registration
      statement:

            -     the note disclosed in the last paragraph under the heading
                  "Certain Relationships and Related Transactions" on page 66;
                  and

            -     the note disclosed under the heading "Promissory Note" on page
                  69.

      Response: The notes have been filed as Exhibits Nos.10.12 and 10.13 to the
      S-4.

      Item 22. Undertakings, page II-13

65.   Please provide the undertakings required by Item 512(a) of Regulation S-K.

      Response: The undertakings have been added.

66.   Please delete the first undertaking, as you are not permitted to
      incorporate your subsequent Exchange Act documents into your prospectus.

      Response: The undertaking has been removed.

      Signatures

67.   It does not appear that Ashton Woods Construction LLC signed the
      registration statement. We note that Ashton Construction signed the
      registration statement on page II--18, but this entity does not appear to
      be a co-registrant. Please revise accordingly.



January 31, 2006
Page 24

      Response: The signature pages have been corrected.

68.   We note that Ashton Houston Residential LLC signed the registration
      statement twice on page II-15 and that Ashton Houston Development LLC did
      not sign the registration statement. Please revise accordingly.

      Response: See response to Comment 67.

      Exhibit 25.1

69.   Please advise us as to the authority you relied upon to include the
      disclaimer set forth under the heading "Note" on page 3.

      Response: An updated Exhibit 25.1 has been filed with the S-4, and the
      updated Exhibit 25.1 does not contain the disclaimer noted in the Staff's
      comment.

70.   Please disclose the filing date of the registration statement from which
      you have incorporated Exhibits 1 through 4.

      Response: The updated Exhibit 25.1 filed with the S-4 contains the date of
      the registration statement from which Exhibits 1-4 are incorporated by
      reference.

      Exhibit 99.1

71.   Please delete the language requiring a security holder to acknowledge or
      certify that he or she has "read", "reviewed" or "understands" all of the
      terms of your exchange offer.

      Response: The language has been deleted from pages five and 16 of Exhibit
      99.1.

72.   We note the disclosure in the section entitled "Irregularities" regarding
      waiving conditions to your exchange offer. In the event that you waive a
      condition, you must waive it as to all security holders. Please revise
      accordingly.

      Response: The disclosure has been revised as requested.

                                     * * * *

If you have any questions regarding the foregoing responses, please call the
undersigned at (404) 815-2287 or Jay Rodriguez at (404) 815-2283.


Sincerely,

/s/ Elizabeth Hardy Noe
for PAUL, HASTINGS, JANOFSKY & WALKER LLP